This past January, in a Future Development tradition, we sat down and offered a few predictions for 2015. Since then the world has experienced quite a few surprises: there was a technical default in Greece; the Chinese stock market plunged, with uncertainty about the global ramifications; and oil prices have remained low, with implications for prospects in producing and consuming countries and for sectors like renewable energy.

We sat down in the Brookings studio to take stock of some of these changes, and see how we should adjust our forecasts from earlier this year. We have three videos for you below, and will have three in our next post. Following that, Future Development will be taking a break for the month of August. We’ll look forward to hearing your comments again come September!

Co-editor of the Brookings Future Development blog Shanta Devarajan discusses how global growth has proceeded over the past six months and how it may continue through the remainder of 2015.

How does global economic growth look so far for 2015?

Co-editor of the Brookings Future Development blog Wolfgang Fengler discusses the ramification of Greece’s economic troubles for Europe, for neighboring countries, and for integration and reform efforts.

Can Europe’s economy still be a pleasant surprise?

Brookings Senior Fellow and Deputy Director of the Global Economy and Development program Homi Kharas discusses why global growth has been disappointing in 2015, especially in Asia, and what the path forward may be.

Video

Authors

Shanta Devarajan

Wolfgang Fengler

Homi Kharas

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Fri, 31 Jul 2015 09:30:00 -0400Shanta Devarajan, Wolfgang Fengler and Homi Kharas
This past January, in a Future Development tradition, we sat down and offered a few predictions for 2015. Since then the world has experienced quite a few surprises: there was a technical default in Greece; the Chinese stock market plunged, with uncertainty about the global ramifications; and oil prices have remained low, with implications for prospects in producing and consuming countries and for sectors like renewable energy.
We sat down in the Brookings studio to take stock of some of these changes, and see how we should adjust our forecasts from earlier this year. We have three videos for you below, and will have three in our next post. Following that, Future Development will be taking a break for the month of August. We’ll look forward to hearing your comments again come September!
Co-editor of the Brookings Future Development blog Shanta Devarajan discusses how global growth has proceeded over the past six months and how it may continue through the remainder of 2015.
How does global economic growth look so far for 2015?
Co-editor of the Brookings Future Development blog Wolfgang Fengler discusses the ramification of Greece’s economic troubles for Europe, for neighboring countries, and for integration and reform efforts.
Can Europe’s economy still be a pleasant surprise?
Brookings Senior Fellow and Deputy Director of the Global Economy and Development program Homi Kharas discusses why global growth has been disappointing in 2015, especially in Asia, and what the path forward may be.
What do the Asian and global economies look like?
Video
- How does global economic growth look so far for 2015?- Can Europe’s economy still be a pleasant surprise?- What do the Asian and global economies look like?
Authors
- Shanta Devarajan- Wolfgang Fengler- Homi Kharas
This past January, in a Future Development tradition, we sat down and offered a few predictions for 2015. Since then the world has experienced quite a few surprises: there was a technical default in Greece; the Chinese stock market plunged, with ...

This past January, in a Future Development tradition, we sat down and offered a few predictions for 2015. Since then the world has experienced quite a few surprises: there was a technical default in Greece; the Chinese stock market plunged, with uncertainty about the global ramifications; and oil prices have remained low, with implications for prospects in producing and consuming countries and for sectors like renewable energy.

We sat down in the Brookings studio to take stock of some of these changes, and see how we should adjust our forecasts from earlier this year. We have three videos for you below, and will have three in our next post. Following that, Future Development will be taking a break for the month of August. We’ll look forward to hearing your comments again come September!

Co-editor of the Brookings Future Development blog Shanta Devarajan discusses how global growth has proceeded over the past six months and how it may continue through the remainder of 2015.

How does global economic growth look so far for 2015?

Co-editor of the Brookings Future Development blog Wolfgang Fengler discusses the ramification of Greece’s economic troubles for Europe, for neighboring countries, and for integration and reform efforts.

Can Europe’s economy still be a pleasant surprise?

Brookings Senior Fellow and Deputy Director of the Global Economy and Development program Homi Kharas discusses why global growth has been disappointing in 2015, especially in Asia, and what the path forward may be.

Recent international attention has focused on China’s destabilizing activities in the South China Sea, but ongoing economic developments between China and its major European trading and investment partners tell a different, more subtle story. Chinese Premier Li Keqiang’s visit to Europe in June and July was a reminder to the world—and to the United States in particular—that China has more ways to advance its interests than precipitating security crises in its region. In Brussels, Li’s call for Greece to remain in the eurozone demonstrated that China is now willing to present its case even on distant, economic issues. It is highly mindful of the potential risks if the Greek crisis were to undermine the EU’s force in global commerce and finance.

China’s economic presence in Europe began to increase in the early 2000s, but accelerated markedly following the 2008 financial crisis. China started diversifying its bond portfolio, buying European bonds instead of concentrating solely on U.S. treasury bonds. The China Ocean Shipping Company also won a 35-year concession for two terminals of Athens’s Piraeus Harbor, thus becoming a key investor in Greece. As Li Keqiang made clear, China sees its relationship with the European Union as vital to its long-term interests, but primarily in economic terms. China sees growing ties to Europe as an alternative to dependence on the United States. It also seeks to convey to European states the potential for much deeper links between the EU and an economically emergent China.

The perils and promise of trading with China

Premier Li visited Brussels to attend the annual EU-China summit and celebrate the 40th anniversary of EU-China diplomatic relations. Trade between China and the EU now exceeds 1 billion euros every day. But how should Europe pursue these possibilities? The strategic issue facing all member states is to ensure that EU-China relations accord fully with the norms and practices that Europe has long fostered. No matter the potential allure of China-Europe relations that Beijing appears to offer, an economic future insufficiently moored to existing norms would be no bargain at all.

At present, the issues under review between China and the EU include heightened protection of intellectual property rights, a new agreement on science and technology, a landmark customs agreement, and a statement on climate change ahead of the Paris conference in December. The discussions between China and the EU on the 315 billion euro-European Fund for Strategic Investments (EFSI) are among the most important policy deliberations affecting long-term cooperation. China sees complementarity in its own grand infrastructure plan ("One Belt, One Road") to tie the future development of Central, South and Southeast Asia to increased Chinese trade and investment with Europe. But the EU’s irritation with Beijing’s “16+1” initiative to extend its cooperation to Central and Eastern European economies continues to place limits on its endorsement of China’s larger strategy.

European leaders also continue to steer clear of detailed discussions of issues that the Chinese deem especially sensitive, but which EU policymakers recognize cannot ultimately be ignored. Human rights, mounting pressures on the activities of western nongovernmental organizations in China, and cybersecurity did not feature officially in the latest talks in Brussels. But the European Commission has undertaken more than 60 bilateral dialogues with China at lower levels, including on some of these more divisive issues.

On the South China Sea, which remains a highly contentious security concern between China and the United States, Germany and France have relied on rare statements from Brussels: The European Commission has released only two documents on mounting maritime disputes over the past two years. But European states take the law of the sea very seriously. Deteriorating conditions in the South China Sea could have important consequences in the Arctic or even in the Mediterranean, underscoring Europe’s objections to unilateral changes in the status quo.

In contrast with European states’ close economic engagement with China, they play a minimal role in Asian security arenas. Unlike the United States, European countries maintain a small military presence in the Asian region. At the same time, China has become highly adept at dividing various European capitals by offering investment and economic cooperation packaged to the needs of individual EU member states. Through a similar Chinese strategy, Germany, the United Kingdom, and France all suffered economic consequences following meetings between their respective leaders and the Dalai Lama. After the Nobel Peace Prize committee’s decision to award the prize to Liu Xiaobo in 2010, China also sought to punish Norway, even though the committee is clearly independent of the Norwegian government (and the country is not a member of the EU).

Speaking with one voice

China’s increased political and economic profile in Europe therefore requires enhanced cooperation among EU member states, so as to better ensure they speak with one voice. There is a parallel need for deeper exchanges between Washington and the EU. Despite the shared sentiments in a majority of capitals, the individual interests of various states provide China with ready opportunities to exploit national differences. For example, Budapest hastily offered to serve as the final European destination for the new “Silk Road.” Similarly, London is focused on offering a grand welcome to President Xi Jinping in a state visit planned for October.

European leaders understand that dealing individually with a stronger China weakens the EU’s hand. By linking its new “Silk Road” to Europe’s own plans for infrastructural development, China seeks to play an enhanced role in the global economy and increase its stake in the EU. But major stakes for the future of the global trading order also loom, making it imperative that Europe proceed fully mindful of the potential consequences.

Europe must therefore enhance its internal deliberations on how to address a China that is clearly intent on a much more ambitious economic profile. China contends that the rules of the game must reflect its increased economic weight, but Europe needs to signal unambiguously that the future economic order remain based on the rule of law and established principles of cooperation. Closer consultations with the United States will also be essential to effectively delivering this message. Above all, Europe needs to demonstrate its readiness to act collectively to ensure European interests and to give China incentives to reinforce international practices that benefit both the region and the globe.

Authors

]]>
Wed, 29 Jul 2015 14:35:00 -0400Jonathan D. Pollack and Philippe Le Corre
Recent international attention has focused on China's destabilizing activities in the South China Sea, but ongoing economic developments between China and its major European trading and investment partners tell a different, more subtle story. Chinese Premier Li Keqiang's visit to Europe in June and July was a reminder to the world—and to the United States in particular—that China has more ways to advance its interests than precipitating security crises in its region. In Brussels, Li's call for Greece to remain in the eurozone demonstrated that China is now willing to present its case even on distant, economic issues. It is highly mindful of the potential risks if the Greek crisis were to undermine the EU's force in global commerce and finance.
China's economic presence in Europe began to increase in the early 2000s, but accelerated markedly following the 2008 financial crisis. China started diversifying its bond portfolio, buying European bonds instead of concentrating solely on U.S. treasury bonds. The China Ocean Shipping Company also won a 35-year concession for two terminals of Athens's Piraeus Harbor, thus becoming a key investor in Greece. As Li Keqiang made clear, China sees its relationship with the European Union as vital to its long-term interests, but primarily in economic terms. China sees growing ties to Europe as an alternative to dependence on the United States. It also seeks to convey to European states the potential for much deeper links between the EU and an economically emergent China.
The perils and promise of trading with China
Premier Li visited Brussels to attend the annual EU-China summit and celebrate the 40th anniversary of EU-China diplomatic relations. Trade between China and the EU now exceeds 1 billion euros every day. But how should Europe pursue these possibilities? The strategic issue facing all member states is to ensure that EU-China relations accord fully with the norms and practices that Europe has long fostered. No matter the potential allure of China-Europe relations that Beijing appears to offer, an economic future insufficiently moored to existing norms would be no bargain at all.
At present, the issues under review between China and the EU include heightened protection of intellectual property rights, a new agreement on science and technology, a landmark customs agreement, and a statement on climate change ahead of the Paris conference in December. The discussions between China and the EU on the 315 billion euro-European Fund for Strategic Investments (EFSI) are among the most important policy deliberations affecting long-term cooperation. China sees complementarity in its own grand infrastructure plan ("One Belt, One Road") to tie the future development of Central, South and Southeast Asia to increased Chinese trade and investment with Europe. But the EU's irritation with Beijing's “16+1” initiative to extend its cooperation to Central and Eastern European economies continues to place limits on its endorsement of China's larger strategy.
European leaders also continue to steer clear of detailed discussions of issues that the Chinese deem especially sensitive, but which EU policymakers recognize cannot ultimately be ignored. Human rights, mounting pressures on the activities of western nongovernmental organizations in China, and cybersecurity did not feature officially in the latest talks in Brussels. But the European Commission has undertaken more than 60 bilateral dialogues with China at lower levels, including on some of these more divisive issues.
On the South China Sea, which remains a highly contentious security concern between China and the United States, Germany and France have relied on rare statements from Brussels: The European Commission has released only two documents on mounting maritime disputes over the past two years. But European states take the law of the sea very seriously. Deteriorating conditions in the South ...
Recent international attention has focused on China's destabilizing activities in the South China Sea, but ongoing economic developments between China and its major European trading and investment partners tell a different, more subtle story.

Recent international attention has focused on China’s destabilizing activities in the South China Sea, but ongoing economic developments between China and its major European trading and investment partners tell a different, more subtle story. Chinese Premier Li Keqiang’s visit to Europe in June and July was a reminder to the world—and to the United States in particular—that China has more ways to advance its interests than precipitating security crises in its region. In Brussels, Li’s call for Greece to remain in the eurozone demonstrated that China is now willing to present its case even on distant, economic issues. It is highly mindful of the potential risks if the Greek crisis were to undermine the EU’s force in global commerce and finance.

China’s economic presence in Europe began to increase in the early 2000s, but accelerated markedly following the 2008 financial crisis. China started diversifying its bond portfolio, buying European bonds instead of concentrating solely on U.S. treasury bonds. The China Ocean Shipping Company also won a 35-year concession for two terminals of Athens’s Piraeus Harbor, thus becoming a key investor in Greece. As Li Keqiang made clear, China sees its relationship with the European Union as vital to its long-term interests, but primarily in economic terms. China sees growing ties to Europe as an alternative to dependence on the United States. It also seeks to convey to European states the potential for much deeper links between the EU and an economically emergent China.

The perils and promise of trading with China

Premier Li visited Brussels to attend the annual EU-China summit and celebrate the 40th anniversary of EU-China diplomatic relations. Trade between China and the EU now exceeds 1 billion euros every day. But how should Europe pursue these possibilities? The strategic issue facing all member states is to ensure that EU-China relations accord fully with the norms and practices that Europe has long fostered. No matter the potential allure of China-Europe relations that Beijing appears to offer, an economic future insufficiently moored to existing norms would be no bargain at all.

At present, the issues under review between China and the EU include heightened protection of intellectual property rights, a new agreement on science and technology, a landmark customs agreement, and a statement on climate change ahead of the Paris conference in December. The discussions between China and the EU on the 315 billion euro-European Fund for Strategic Investments (EFSI) are among the most important policy deliberations affecting long-term cooperation. China sees complementarity in its own grand infrastructure plan ("One Belt, One Road") to tie the future development of Central, South and Southeast Asia to increased Chinese trade and investment with Europe. But the EU’s irritation with Beijing’s “16+1” initiative to extend its cooperation to Central and Eastern European economies continues to place limits on its endorsement of China’s larger strategy.

European leaders also continue to steer clear of detailed discussions of issues that the Chinese deem especially sensitive, but which EU policymakers recognize cannot ultimately be ignored. Human rights, mounting pressures on the activities of western nongovernmental organizations in China, and cybersecurity did not feature officially in the latest talks in Brussels. But the European Commission has undertaken more than 60 bilateral dialogues with China at lower levels, including on some of these more divisive issues.

On the South China Sea, which remains a highly contentious security concern between China and the United States, Germany and France have relied on rare statements from Brussels: The European Commission has released only two documents on mounting maritime disputes over the past two years. But European states take the law of the sea very seriously. Deteriorating conditions in the South China Sea could have important consequences in the Arctic or even in the Mediterranean, underscoring Europe’s objections to unilateral changes in the status quo.

In contrast with European states’ close economic engagement with China, they play a minimal role in Asian security arenas. Unlike the United States, European countries maintain a small military presence in the Asian region. At the same time, China has become highly adept at dividing various European capitals by offering investment and economic cooperation packaged to the needs of individual EU member states. Through a similar Chinese strategy, Germany, the United Kingdom, and France all suffered economic consequences following meetings between their respective leaders and the Dalai Lama. After the Nobel Peace Prize committee’s decision to award the prize to Liu Xiaobo in 2010, China also sought to punish Norway, even though the committee is clearly independent of the Norwegian government (and the country is not a member of the EU).

Speaking with one voice

China’s increased political and economic profile in Europe therefore requires enhanced cooperation among EU member states, so as to better ensure they speak with one voice. There is a parallel need for deeper exchanges between Washington and the EU. Despite the shared sentiments in a majority of capitals, the individual interests of various states provide China with ready opportunities to exploit national differences. For example, Budapest hastily offered to serve as the final European destination for the new “Silk Road.” Similarly, London is focused on offering a grand welcome to President Xi Jinping in a state visit planned for October.

European leaders understand that dealing individually with a stronger China weakens the EU’s hand. By linking its new “Silk Road” to Europe’s own plans for infrastructural development, China seeks to play an enhanced role in the global economy and increase its stake in the EU. But major stakes for the future of the global trading order also loom, making it imperative that Europe proceed fully mindful of the potential consequences.

Europe must therefore enhance its internal deliberations on how to address a China that is clearly intent on a much more ambitious economic profile. China contends that the rules of the game must reflect its increased economic weight, but Europe needs to signal unambiguously that the future economic order remain based on the rule of law and established principles of cooperation. Closer consultations with the United States will also be essential to effectively delivering this message. Above all, Europe needs to demonstrate its readiness to act collectively to ensure European interests and to give China incentives to reinforce international practices that benefit both the region and the globe.

Authors

]]>
http://www.brookings.edu/blogs/up-front/posts/2015/07/27-greece-bailout-grexit-pelagidis?rssid=europe{651CA4E4-3902-4620-BB7F-8B56DF466A32}http://webfeeds.brookings.edu/~/103777344/0/brookingsrss/topics/europe~The-Greek-bailout-drama-Is-this-time-differentThe Greek bailout drama: Is this time different?

Economists and analysts around the world, believing a Grexit almost inevitable just a month ago, now insist that the proposed deal between the Greek government and the creditors is only band aid for Greece’s economy and so, it will not work. Well, of course, after five years of depression, having the troika back in Athens to discuss a new package of what I call “reform austerity” is not the easiest thing in the world. However, this time it seems that preconditions for a viable solution are well in place. Let me explain why.

First, the Greeks have now understood that there are no easy or viable policy alternatives to a deal so any reactions to the agreement are expected to be rather mild. Voters do not recognize the last five months as a disaster for the economy and, instead, they seem to believe that Prime Minister Alexis Tsipras did the best he could to negotiate effectively with the creditors. So, if Tsipras cannot deliver something better for them, nobody can.

Second, the Europeans now understand that only Tsipras—a left leaning, highly popular prime minister—can not only pass the bills of the prospective agreement but more importantly guarantee implementation with minimum social unrest. Some commentators will caution that Tsipras openly expresses doubts about the political orientation of the agreement and questions the “social fairness” of it, but what do you expect a politician to tell voters? That he is enthusiastic about the program?

Third, the Europeans this time seem to be determined to use the “carrot and stick” method. The carrot is called “reforms for money” and “reform for some debt forgiveness, of any kind.” If the creditors play well, the program might deliver results this time. The stick is called “a temporary Grexit” and will be used to convince not only the government but also the domestic political system as a whole that it must comply with the rules of the prospective agreement.

Fourth, the Europeans seem now to agree on some kind of re-profiling of the Greek debt. This will serve as a victory for Tsipras in the eyes of domestic voters and protect his popularity. This is indispensable if the creditors want reforms to pass and, this time, to see them efficiently implemented in the real economy. The creditors now understand that the focus should be on the real implementation of reforms, most of which were very effectively described in the IMF 5th review from summer 2014, and which are still waiting to be applied in the real economy.

Fifth, this time the external environment is much better than it was two or four years ago. Eurozone growth rates are steadily improving, the European Central Bank’s Quantitative Easing (QE) program continues to mutualize the eurozone’s debt (that will hopefully include Greek bonds) and French President Francois Hollande’s proposals last week regarding the urgent need for a “eurozone government” shows that European leaders now understand that the multiples deficits—institutional, democratic, and financial—of the euro have to be addressed this time immediately and substantially. Delays in effecting such changes will only favor the extreme political forces arguing not only for the dismantling of the eurozone, but for a breakup of the entire European Union project.

Last, but not least, as some analysts have already shown, Greece’s debt is not as much of a burden for its economy as some have suggested (you can read my take on it in a previous blog). The European System of Accounts (ESA)—the system of national accounts and regional accounts used by members of the EU—give “a solid legal basis” for debt rescheduling. Together with the International Public Sector Accounting Standards (IPSAS)—the public sector version of International Financial Reporting Standards used by companies—they could give the Greek government the advantage of producing audited financial statements. As they specify that the debt is to be valued at the time of transaction using comparable market values under commercial considerations, both the ESA and IPSAS rules, if and when applied to Greek debt, might help to show the restructured debt number on its balance sheet, which will be lower than the original face value (Kazarian 2015).[1]

These detailed accounting rules might allow Greece to show the new lower debt value on its balance sheet in order to have a renewed opportunity to grow and prosper. And this is exactly what Greece needs right now: a fresh start. So, debt restructuring/re-profiling might not be such a difficult task since the official tools are there and Greek government liabilities are already in much better shape in Net Present Values terms than most of the people realize.

This is a big deal not only for the amount of debt the market perceives as existing. It will strengthen the view that Greece has a genuine chance to attract foreign investment, upgrade the value of its national assets, get more money from privatizations, increase the value of collateral holdings by the banks, create more jobs and income and, thus, at last recover strongly. With Greece and the troika back at the negotiating table, this time could well be different.

Authors

]]>
Mon, 27 Jul 2015 16:19:00 -0400Theodore Pelagidis
Economists and analysts around the world, believing a Grexit almost inevitable just a month ago, now insist that the proposed deal between the Greek government and the creditors is only band aid for Greece's economy and so, it will not work. Well, of course, after five years of depression, having the troika back in Athens to discuss a new package of what I call “reform austerity” is not the easiest thing in the world. However, this time it seems that preconditions for a viable solution are well in place. Let me explain why.
First, the Greeks have now understood that there are no easy or viable policy alternatives to a deal so any reactions to the agreement are expected to be rather mild. Voters do not recognize the last five months as a disaster for the economy and, instead, they seem to believe that Prime Minister Alexis Tsipras did the best he could to negotiate effectively with the creditors. So, if Tsipras cannot deliver something better for them, nobody can.
Second, the Europeans now understand that only Tsipras—a left leaning, highly popular prime minister—can not only pass the bills of the prospective agreement but more importantly guarantee implementation with minimum social unrest. Some commentators will caution that Tsipras openly expresses doubts about the political orientation of the agreement and questions the “social fairness” of it, but what do you expect a politician to tell voters? That he is enthusiastic about the program?
Third, the Europeans this time seem to be determined to use the “carrot and stick” method. The carrot is called “reforms for money” and “reform for some debt forgiveness, of any kind.” If the creditors play well, the program might deliver results this time. The stick is called “a temporary Grexit” and will be used to convince not only the government but also the domestic political system as a whole that it must comply with the rules of the prospective agreement.
Fourth, the Europeans seem now to agree on some kind of re-profiling of the Greek debt. This will serve as a victory for Tsipras in the eyes of domestic voters and protect his popularity. This is indispensable if the creditors want reforms to pass and, this time, to see them efficiently implemented in the real economy. The creditors now understand that the focus should be on the real implementation of reforms, most of which were very effectively described in the IMF 5th review from summer 2014, and which are still waiting to be applied in the real economy.
Fifth, this time the external environment is much better than it was two or four years ago. Eurozone growth rates are steadily improving, the European Central Bank's Quantitative Easing (QE) program continues to mutualize the eurozone's debt (that will hopefully include Greek bonds) and French President Francois Hollande's proposals last week regarding the urgent need for a “eurozone government” shows that European leaders now understand that the multiples deficits—institutional, democratic, and financial—of the euro have to be addressed this time immediately and substantially. Delays in effecting such changes will only favor the extreme political forces arguing not only for the dismantling of the eurozone, but for a breakup of the entire European Union project.
Last, but not least, as some analysts have already shown, Greece's debt is not as much of a burden for its economy as some have suggested (you can read my take on it in a previous blog). The European System of Accounts (ESA)—the system of national accounts and regional accounts used by members of the EU—give “a solid legal basis” for debt rescheduling. Together with the International Public Sector Accounting Standards (IPSAS)—the public sector version of International Financial Reporting Standards used by companies—they could give the Greek government ...
Economists and analysts around the world, believing a Grexit almost inevitable just a month ago, now insist that the proposed deal between the Greek government and the creditors is only band aid for Greece's economy and so, it will not work.

Economists and analysts around the world, believing a Grexit almost inevitable just a month ago, now insist that the proposed deal between the Greek government and the creditors is only band aid for Greece’s economy and so, it will not work. Well, of course, after five years of depression, having the troika back in Athens to discuss a new package of what I call “reform austerity” is not the easiest thing in the world. However, this time it seems that preconditions for a viable solution are well in place. Let me explain why.

First, the Greeks have now understood that there are no easy or viable policy alternatives to a deal so any reactions to the agreement are expected to be rather mild. Voters do not recognize the last five months as a disaster for the economy and, instead, they seem to believe that Prime Minister Alexis Tsipras did the best he could to negotiate effectively with the creditors. So, if Tsipras cannot deliver something better for them, nobody can.

Second, the Europeans now understand that only Tsipras—a left leaning, highly popular prime minister—can not only pass the bills of the prospective agreement but more importantly guarantee implementation with minimum social unrest. Some commentators will caution that Tsipras openly expresses doubts about the political orientation of the agreement and questions the “social fairness” of it, but what do you expect a politician to tell voters? That he is enthusiastic about the program?

Third, the Europeans this time seem to be determined to use the “carrot and stick” method. The carrot is called “reforms for money” and “reform for some debt forgiveness, of any kind.” If the creditors play well, the program might deliver results this time. The stick is called “a temporary Grexit” and will be used to convince not only the government but also the domestic political system as a whole that it must comply with the rules of the prospective agreement.

Fourth, the Europeans seem now to agree on some kind of re-profiling of the Greek debt. This will serve as a victory for Tsipras in the eyes of domestic voters and protect his popularity. This is indispensable if the creditors want reforms to pass and, this time, to see them efficiently implemented in the real economy. The creditors now understand that the focus should be on the real implementation of reforms, most of which were very effectively described in the IMF 5th review from summer 2014, and which are still waiting to be applied in the real economy.

Fifth, this time the external environment is much better than it was two or four years ago. Eurozone growth rates are steadily improving, the European Central Bank’s Quantitative Easing (QE) program continues to mutualize the eurozone’s debt (that will hopefully include Greek bonds) and French President Francois Hollande’s proposals last week regarding the urgent need for a “eurozone government” shows that European leaders now understand that the multiples deficits—institutional, democratic, and financial—of the euro have to be addressed this time immediately and substantially. Delays in effecting such changes will only favor the extreme political forces arguing not only for the dismantling of the eurozone, but for a breakup of the entire European Union project.

Last, but not least, as some analysts have already shown, Greece’s debt is not as much of a burden for its economy as some have suggested (you can read my take on it in a previous blog). The European System of Accounts (ESA)—the system of national accounts and regional accounts used by members of the EU—give “a solid legal basis” for debt rescheduling. Together with the International Public Sector Accounting Standards (IPSAS)—the public sector version of International Financial Reporting Standards used by companies—they could give the Greek government the advantage of producing audited financial statements. As they specify that the debt is to be valued at the time of transaction using comparable market values under commercial considerations, both the ESA and IPSAS rules, if and when applied to Greek debt, might help to show the restructured debt number on its balance sheet, which will be lower than the original face value (Kazarian 2015).[1]

These detailed accounting rules might allow Greece to show the new lower debt value on its balance sheet in order to have a renewed opportunity to grow and prosper. And this is exactly what Greece needs right now: a fresh start. So, debt restructuring/re-profiling might not be such a difficult task since the official tools are there and Greek government liabilities are already in much better shape in Net Present Values terms than most of the people realize.

This is a big deal not only for the amount of debt the market perceives as existing. It will strengthen the view that Greece has a genuine chance to attract foreign investment, upgrade the value of its national assets, get more money from privatizations, increase the value of collateral holdings by the banks, create more jobs and income and, thus, at last recover strongly. With Greece and the troika back at the negotiating table, this time could well be different.

For the last eighteen months or so, Berlin appeared to be the calm and resolute eye of a perfect storm brewing over Europe: persistent economic distress and mass youth unemployment in the southern EU states, an undeclared war between Ukraine and Russia, and conflict in North Africa and the Middle East driving record waves of refugees onto the shores of the continent. After the rancorous third Greek bailout last week—and torrents of recrimination heaped on Germany from around the world—the weather front hit the capital. It turned into what Germans call ein shitstorm.

Throwing stones

Reactions in Germany have run the gamut from anguished self-examination and hand-wringing to shrugs and righteous indignation. Still, polls show that large majorities in Germany want to keep Greece in the eurozone, but approve of Merkel too. An even larger number approves of her much-maligned finance minister, Wolfgang Schäuble. The government, no doubt, will feel encouraged. Some of the criticism from abroad—the Nazi references, skewed historical comparisons with Germany’s war debt, and calls for reparations—only reinforces the defensiveness of many Germans, because it is seen as unfair.

How much, in all these accusations, is accurate? And what is the thinking behind Germany’s stance?

By all accounts, Merkel’s negotiators were deeply angered: by the Prime Minister Alexis Tsipras’ referendum U-turn, by his government squandering the few green shoots of reform it had, and by being called “terrorists“ by Schäuble’s departed Greek counterpart, Yannis Varoufakis. Yet for Schäuble to demand that Greek assets be privatized by a European fund based in Luxembourg and managed by a German government bank came dangerously close to punishment rather than policy.

German leaders’ intransigent style in the negotiations has also been skewered—not least by the German opposition. (Reinhard Bütikofer, head of the Greens in the European Parliament, said: “the heartless, domineering, and ugly German has a face again, and it is the face of Schäuble.”) It’s true that there was an appalling failure to communicate: the finance minister presented a surprise Grexit paper, his officials took on a hectoring tone, a choir of conservative backbenchers expressed open anger, and heavy artillery fire came from Germany’s tabloid BILD. All this comes from a government that keeps talking about the need for “strategic communication.” Judging by the anger among the leaders of Merkel’s coalition party, the Social Democrats, the communication failure extended to her government partners.

Where does integration stop?

Beyond the sound and fury, however, lie complex debates: about economic policy, politics, the future of Europe. They also illuminate the need to adapt Europe’s architecture to its shifting strategic context.

Reconciliation with its neighbors and integration into Europe were essential to postwar Germany’s rehabilitation. The European Union and the euro have given today’s Germany prosperity, security, and power without parallel in its history. So its commitment to the survival of both is existential.

In this, Merkel and Schäuble are in absolute agreement. For both, the destiny of Europe is closely intertwined with their own: the current crisis puts at risk their lives’ work and their legacy. They disagree on how much European integration is necessary to preserve the euro and the Union. And their disagreement defines the crossroads at which Europe now finds itself.

Schäuble is an ardent European in the West German postwar tradition, a lawyer, and the architect of German reunification. Varoufakis has called him a “neoliberal,” but that is a misreading: Schäuble is a statist, who believes that strong rules and institutions are necessary as impartial arbiters of politics. His vision of Europe is neither federalist nor post-national, but that of a robust, resilient avant-garde held together by a common currency, and by genuine economic governance (which would also permit risk mutualization). A Grexit, in this logic, could have been—or could still be—the seismic shock that could tip a core group of like-minded EU member states into deeper integration.

Merkel, the East German, sees the European Union as a collective of nation-states who share sovereignty as much as necessary, rather than as much as possible—an approach also known as inter-governmentalism. Her cool physicists’ view of the continent acknowledges the reality of cultural and political difference, of tensions, of friction and breaking points. She recognizes the importance of political give-and-take, rather than rules, in bridging them. And she is also far more sensitive to public opinion. For her, a Grexit had to be avoided at all costs, because of the uncontrollable risk of economic and political ripple effects throughout the union.

When the Bundestag approved the third bailout last week (with 439 votes for, 119 against, and 40 abstentions), it meant that Schäuble bowed to the Chancellor, as he has done a number of times before. But it was an ugly win, with 65 members of Merkel’s own conservative party voting against or abstaining, double the number of dissenters in the last bailout in February. And a veiled threat of resignation by Schäuble did not go unnoticed. So Merkel has won a ferocious battle, but with no inconsiderable damage to her standing.

A changed Europe

Much—including Merkel’s reputation—now hinges on achieving a turnaround in the Greek economy. Judging by the Greek parliament’s two reform package votes and Greek opinion polls, which show overwhelming support for staying in the eurozone, Tsipras has managed to rally most of the political parties and public opinion behind him.

But even if Greece succeeds in avoiding economic disaster, the conflict over the bailout has exposed deep rifts in Europe, and the fundamental disagreements over its future remain unresolved. All this will be a severe test for Germany’s European leadership ambitions. The past week has shown just how severe the struggle is for Germany’s leaders.

Authors

]]>
Fri, 24 Jul 2015 11:30:00 -0400Constanze Stelzenmüller
For the last eighteen months or so, Berlin appeared to be the calm and resolute eye of a perfect storm brewing over Europe: persistent economic distress and mass youth unemployment in the southern EU states, an undeclared war between Ukraine and Russia, and conflict in North Africa and the Middle East driving record waves of refugees onto the shores of the continent. After the rancorous third Greek bailout last week—and torrents of recrimination heaped on Germany from around the world—the weather front hit the capital. It turned into what Germans call ein shitstorm.
A viral video clip of a young Palestinian refugee bursting into tears after hearing from Chancellor Angela Merkel that she might have to go back didn't help. Stern magazine promptly depicted a steely-looking chancellor on its cover, with the caption “The Ice Queen.” It has not been a good week in Berlin.
Throwing stones
Reactions in Germany have run the gamut from anguished self-examination and hand-wringing to shrugs and righteous indignation. Still, polls show that large majorities in Germany want to keep Greece in the eurozone, but approve of Merkel too. An even larger number approves of her much-maligned finance minister, Wolfgang Schäuble. The government, no doubt, will feel encouraged. Some of the criticism from abroad—the Nazi references, skewed historical comparisons with Germany's war debt, and calls for reparations—only reinforces the defensiveness of many Germans, because it is seen as unfair.
How much, in all these accusations, is accurate? And what is the thinking behind Germany's stance?
By all accounts, Merkel's negotiators were deeply angered: by the Prime Minister Alexis Tsipras' referendum U-turn, by his government squandering the few green shoots of reform it had, and by being called “terrorists“ by Schäuble's departed Greek counterpart, Yannis Varoufakis. Yet for Schäuble to demand that Greek assets be privatized by a European fund based in Luxembourg and managed by a German government bank came dangerously close to punishment rather than policy.
German leaders' intransigent style in the negotiations has also been skewered—not least by the German opposition. (Reinhard Bütikofer, head of the Greens in the European Parliament, said: “the heartless, domineering, and ugly German has a face again, and it is the face of Schäuble.”) It's true that there was an appalling failure to communicate: the finance minister presented a surprise Grexit paper, his officials took on a hectoring tone, a choir of conservative backbenchers expressed open anger, and heavy artillery fire came from Germany's tabloid BILD. All this comes from a government that keeps talking about the need for “strategic communication.” Judging by the anger among the leaders of Merkel's coalition party, the Social Democrats, the communication failure extended to her government partners.
Where does integration stop?
Beyond the sound and fury, however, lie complex debates: about economic policy, politics, the future of Europe. They also illuminate the need to adapt Europe's architecture to its shifting strategic context.
Reconciliation with its neighbors and integration into Europe were essential to postwar Germany's rehabilitation. The European Union and the euro have given today's Germany prosperity, security, and power without parallel in its history. So its commitment to the survival of both is existential.
In this, Merkel and Schäuble are in absolute agreement. For both, the destiny of Europe is closely intertwined with their own: the current crisis puts at risk their lives' work and their legacy. They disagree on how much European integration is necessary to preserve the euro and the Union. And their disagreement defines the crossroads at which Europe now finds itself.
Schäuble is an ardent European in the West German postwar tradition, a ...
For the last eighteen months or so, Berlin appeared to be the calm and resolute eye of a perfect storm brewing over Europe: persistent economic distress and mass youth unemployment in the southern EU states, an undeclared war between Ukraine and ...

For the last eighteen months or so, Berlin appeared to be the calm and resolute eye of a perfect storm brewing over Europe: persistent economic distress and mass youth unemployment in the southern EU states, an undeclared war between Ukraine and Russia, and conflict in North Africa and the Middle East driving record waves of refugees onto the shores of the continent. After the rancorous third Greek bailout last week—and torrents of recrimination heaped on Germany from around the world—the weather front hit the capital. It turned into what Germans call ein shitstorm.

Throwing stones

Reactions in Germany have run the gamut from anguished self-examination and hand-wringing to shrugs and righteous indignation. Still, polls show that large majorities in Germany want to keep Greece in the eurozone, but approve of Merkel too. An even larger number approves of her much-maligned finance minister, Wolfgang Schäuble. The government, no doubt, will feel encouraged. Some of the criticism from abroad—the Nazi references, skewed historical comparisons with Germany’s war debt, and calls for reparations—only reinforces the defensiveness of many Germans, because it is seen as unfair.

How much, in all these accusations, is accurate? And what is the thinking behind Germany’s stance?

By all accounts, Merkel’s negotiators were deeply angered: by the Prime Minister Alexis Tsipras’ referendum U-turn, by his government squandering the few green shoots of reform it had, and by being called “terrorists“ by Schäuble’s departed Greek counterpart, Yannis Varoufakis. Yet for Schäuble to demand that Greek assets be privatized by a European fund based in Luxembourg and managed by a German government bank came dangerously close to punishment rather than policy.

German leaders’ intransigent style in the negotiations has also been skewered—not least by the German opposition. (Reinhard Bütikofer, head of the Greens in the European Parliament, said: “the heartless, domineering, and ugly German has a face again, and it is the face of Schäuble.”) It’s true that there was an appalling failure to communicate: the finance minister presented a surprise Grexit paper, his officials took on a hectoring tone, a choir of conservative backbenchers expressed open anger, and heavy artillery fire came from Germany’s tabloid BILD. All this comes from a government that keeps talking about the need for “strategic communication.” Judging by the anger among the leaders of Merkel’s coalition party, the Social Democrats, the communication failure extended to her government partners.

Where does integration stop?

Beyond the sound and fury, however, lie complex debates: about economic policy, politics, the future of Europe. They also illuminate the need to adapt Europe’s architecture to its shifting strategic context.

Reconciliation with its neighbors and integration into Europe were essential to postwar Germany’s rehabilitation. The European Union and the euro have given today’s Germany prosperity, security, and power without parallel in its history. So its commitment to the survival of both is existential.

In this, Merkel and Schäuble are in absolute agreement. For both, the destiny of Europe is closely intertwined with their own: the current crisis puts at risk their lives’ work and their legacy. They disagree on how much European integration is necessary to preserve the euro and the Union. And their disagreement defines the crossroads at which Europe now finds itself.

Schäuble is an ardent European in the West German postwar tradition, a lawyer, and the architect of German reunification. Varoufakis has called him a “neoliberal,” but that is a misreading: Schäuble is a statist, who believes that strong rules and institutions are necessary as impartial arbiters of politics. His vision of Europe is neither federalist nor post-national, but that of a robust, resilient avant-garde held together by a common currency, and by genuine economic governance (which would also permit risk mutualization). A Grexit, in this logic, could have been—or could still be—the seismic shock that could tip a core group of like-minded EU member states into deeper integration.

Merkel, the East German, sees the European Union as a collective of nation-states who share sovereignty as much as necessary, rather than as much as possible—an approach also known as inter-governmentalism. Her cool physicists’ view of the continent acknowledges the reality of cultural and political difference, of tensions, of friction and breaking points. She recognizes the importance of political give-and-take, rather than rules, in bridging them. And she is also far more sensitive to public opinion. For her, a Grexit had to be avoided at all costs, because of the uncontrollable risk of economic and political ripple effects throughout the union.

When the Bundestag approved the third bailout last week (with 439 votes for, 119 against, and 40 abstentions), it meant that Schäuble bowed to the Chancellor, as he has done a number of times before. But it was an ugly win, with 65 members of Merkel’s own conservative party voting against or abstaining, double the number of dissenters in the last bailout in February. And a veiled threat of resignation by Schäuble did not go unnoticed. So Merkel has won a ferocious battle, but with no inconsiderable damage to her standing.

A changed Europe

Much—including Merkel’s reputation—now hinges on achieving a turnaround in the Greek economy. Judging by the Greek parliament’s two reform package votes and Greek opinion polls, which show overwhelming support for staying in the eurozone, Tsipras has managed to rally most of the political parties and public opinion behind him.

But even if Greece succeeds in avoiding economic disaster, the conflict over the bailout has exposed deep rifts in Europe, and the fundamental disagreements over its future remain unresolved. All this will be a severe test for Germany’s European leadership ambitions. The past week has shown just how severe the struggle is for Germany’s leaders.

Authors

]]>
http://www.brookings.edu/blogs/future-development/posts/2015/07/22-aging-migration-winkler?rssid=europe{EC1036B4-239A-432C-8E03-2EB966EB1FA9}http://webfeeds.brookings.edu/~/102732888/0/brookingsrss/topics/europe~Why-do-elderly-people-oppose-immigration-when-they%e2%80%99re-most-likely-to-benefitWhy do elderly people oppose immigration when they’re most likely to benefit?

The vast number of immigrants crossing the Mediterranean recently has been fueling anti-immigrant sentiment across Europe, adding even more challenges to the debate about immigration policies. The difficulty that surrounds agreement on immigration matters is also evident if we look at the current state of the European Union immigration policy; rather than a common policy, it is a collection of 28 migration regimes with marked differences in terms of openness and flexibility.

Moreover, it is old people everywhere who oppose immigration the most, across the board (see Figure 1). In every country for which we have data (except Sweden) at least 40 percent of old natives claim to have negative attitudes towards immigrants. In countries such as Hungary or Cyprus that figure is 80 percent. Older natives disproportionately oppose immigration, regardless of income, education and employment status.

Figure 1. Negative attitudes toward immigrants by natives’ age group and country

Source: Own estimates based on the European Social Survey 2002-2012. Note: A native is considered to have negative attitudes if he/she thinks that none or few immigrants should be allowed in the country (as opposed to many or some immigrants).

This is paradoxical since older people are more likely than others to benefit from an influx of immigrant workers for four main reasons:

Older citizens are more likely to be retired, and thus, less concerned about facing increased competition in the labor market.

They typically have more savings, whose rate of return may rise if the increased labor force strengthens the economy.

Yet one question remains: Why is there so much variation in the effect of age on attitudes toward immigrants across countries?

What matters most is if older citizens still work. In countries with an extended retirement age and a higher labor force participation of older workers, natives become less averse to immigrants with age. This result is consistent with empirical evidence (more here, and here) showing that older workers and young and/or immigrant workers complement each other at the workplace and thereby would mutually benefit from the associated increase in earnings.

This means that aging societies may become more—not less—open to immigration as the elderly increasingly represent a larger fraction of the population and newer more cosmopolitan generations replace the current more immigration-adverse generation. Moreover, this trend may be accelerated by changes in the labor market and adult learning, as aging economies move to an activeaging growth model—a model where both immigrants and older workers mutually benefit in the labor market.

This blog builds on a forthcoming World Bank report entitled “Golden Aging: Prospects for Healthy, Active, and Prosperous Aging in Europe and Central Asia.”

Authors

Hernan Winkler

]]>
Wed, 22 Jul 2015 09:30:00 -0400Hernan Winkler
The vast number of immigrants crossing the Mediterranean recently has been fueling anti-immigrant sentiment across Europe, adding even more challenges to the debate about immigration policies. The difficulty that surrounds agreement on immigration matters is also evident if we look at the current state of the European Union immigration policy; rather than a common policy, it is a collection of 28 migration regimes with marked differences in terms of openness and flexibility.
This is a problem because Europe's population is expected to age rapidly. And even though immigration won't solve all of Europe's economic woes, more open and flexible immigration policies will inject much-needed flexibility and dynamism into Europe's graying economies. But major hurdles exist, not least in attitudes. Paradoxically, some of the countries projected to gain the most from a boost in working age populations are also overwhelmingly averse to immigrants.
Moreover, it is old people everywhere who oppose immigration the most, across the board (see Figure 1). In every country for which we have data (except Sweden) at least 40 percent of old natives claim to have negative attitudes towards immigrants. In countries such as Hungary or Cyprus that figure is 80 percent. Older natives disproportionately oppose immigration, regardless of income, education and employment status.
Figure 1. Negative attitudes toward immigrants by natives' age group and country
Source: Own estimates based on the European Social Survey 2002-2012. Note: A native is considered to have negative attitudes if he/she thinks that none or few immigrants should be allowed in the country (as opposed to many or some immigrants).
This is paradoxical since older people are more likely than others to benefit from an influx of immigrant workers for four main reasons:
- Older citizens are more likely to be retired, and thus, less concerned about facing increased competition in the labor market. - They typically have more savings, whose rate of return may rise if the increased labor force strengthens the economy. - Immigration may improve the fiscal sustainability of pay-as-you-go pension systems, which benefit older citizens. - The price of elderly-related services (e.g., housekeeping and caregiving) could see an appreciable drop as the labor force expands.
However, there is an interesting twist to the differences in attitudes towards immigrants across age groups, because they are mostly driven by generational changes. When we compare the evolution of attitudes towards migrants throughout the life cycle for groups of individuals born in the same year, we find that in most countries they are quite stable or improve as individuals become older. These results are more consistent with the predictions of economic theories (i.e. if anything, natives should become less averse to immigrants with age). In other words, while the attitude gap between the old and young remains, the importance of generational effects imply that people in all age groups have become more tolerant over the past years.
Yet one question remains: Why is there so much variation in the effect of age on attitudes toward immigrants across countries?
What matters most is if older citizens still work. In countries with an extended retirement age and a higher labor force participation of older workers, natives become less averse to immigrants with age. This result is consistent with empirical evidence (more here, and here) showing that older workers and young and/or immigrant workers complement each other at the workplace and thereby would mutually benefit from the associated increase in earnings.
This means that aging societies may become more—not less—open to immigration as the elderly increasingly represent a larger fraction of the population and newer more cosmopolitan generations replace the current more immigration-adverse generation. Moreover, this trend may be accelerated by changes in the ...
The vast number of immigrants crossing the Mediterranean recently has been fueling anti-immigrant sentiment across Europe, adding even more challenges to the debate about immigration policies. The difficulty that surrounds agreement on ...

The vast number of immigrants crossing the Mediterranean recently has been fueling anti-immigrant sentiment across Europe, adding even more challenges to the debate about immigration policies. The difficulty that surrounds agreement on immigration matters is also evident if we look at the current state of the European Union immigration policy; rather than a common policy, it is a collection of 28 migration regimes with marked differences in terms of openness and flexibility.

Moreover, it is old people everywhere who oppose immigration the most, across the board (see Figure 1). In every country for which we have data (except Sweden) at least 40 percent of old natives claim to have negative attitudes towards immigrants. In countries such as Hungary or Cyprus that figure is 80 percent. Older natives disproportionately oppose immigration, regardless of income, education and employment status.

Figure 1. Negative attitudes toward immigrants by natives’ age group and country

Source: Own estimates based on the European Social Survey 2002-2012. Note: A native is considered to have negative attitudes if he/she thinks that none or few immigrants should be allowed in the country (as opposed to many or some immigrants).

This is paradoxical since older people are more likely than others to benefit from an influx of immigrant workers for four main reasons:

Older citizens are more likely to be retired, and thus, less concerned about facing increased competition in the labor market.

They typically have more savings, whose rate of return may rise if the increased labor force strengthens the economy.

Yet one question remains: Why is there so much variation in the effect of age on attitudes toward immigrants across countries?

What matters most is if older citizens still work. In countries with an extended retirement age and a higher labor force participation of older workers, natives become less averse to immigrants with age. This result is consistent with empirical evidence (more here, and here) showing that older workers and young and/or immigrant workers complement each other at the workplace and thereby would mutually benefit from the associated increase in earnings.

This means that aging societies may become more—not less—open to immigration as the elderly increasingly represent a larger fraction of the population and newer more cosmopolitan generations replace the current more immigration-adverse generation. Moreover, this trend may be accelerated by changes in the labor market and adult learning, as aging economies move to an activeaging growth model—a model where both immigrants and older workers mutually benefit in the labor market.

This blog builds on a forthcoming World Bank report entitled “Golden Aging: Prospects for Healthy, Active, and Prosperous Aging in Europe and Central Asia.”

Nearly one in five rural Bosnians is poor, and a rural dweller in Bosnia is twice as likely to be poor as his city-dwelling compatriot. That matters when you consider that the poverty threshold is based on minimum calorie requirements and other basic life essentials. And it matters even more in a country where 60 percent of people still live in the countryside, unchanged since Yugoslav times.

In Bosnia, rural life has been declining over the past 20 years. Literally. It’s not unusual to see half-deserted small towns or villages in rural Bosnia. And it is easy to understand why. Bosnia’s population declined from a pre-war peak of close to 4.4 million people to just 3.8 million according to the 2013 census—a fall of 13 percent. Rural areas have shared an equal proportion of this decline with urban ones.

I grew up in a small village of 400 people in rural England and, while I'm a fan of cities for many reasons (most eloquently described by Ed Glaeser), rural livelihoods take on a particular importance in the Bosnian case. Why should there be a focus on rural livelihoods in Bosnia?

More mobile than it first seems

Even though a constant 60 percent of the population have been classified as rural for the last 20 years, they are more mobile that it first seems. While municipalities with very low population densities (fewer than 50 persons per square kilometer) did indeed shrink between 1991 and 2013, medium-density municipalities (50 to 100 persons per square kilometer), which are still classified as rural, grew in size, both in absolute terms and as a share of the population. They absorbed people from the very small settlements and also from dense city centers. A recent study confirms these findings and reveal similar patterns in several other European countries. Most visibly, change in night-time lights show that many rural areas in Bosnia grew darker between 1996 and 2010, while suburban and peri-urban areas grew brighter.

Figure 1. Change in night time lights, 1996-2010

And rural dwellers don’t seem to be doing badly in other ways. Within 3 km of their homes half of rural Bosnians have a clinic and a primary school, and a third can reach a post office. A quarter have a shop within just 100 meters. That gives most rural Bosnians much better access to services than I had growing up in my home village. The same survey found that rural and urban families have similar rates of child vaccinations, child sickness, secondary school attendance, literacy, and access to drinking water. Child malnutrition was even slightly lower in rural areas than in urban ones. Rural dwellers perceive themselves as having several advantages over urban ones; the food, environment, and health are all considered by rural dwellers to be better in the countryside. Administrative data from the Republika Srpska even suggests that rural wages were only 9 percent lower than urban wages in 2012 (and the gap narrowed from 12 percent in 2007). And there’s the rub.

Cities ain’t so good

Even though the rural poverty rate is higher, rural income lower, and employment somewhat lower, rural folk still don’t want to search for streets paved with gold in Bosnia’s cities. A reasonable quality of life in rural areas combined with the challenges of urban life keep people in rural areas. Rural households have reasonable (if improvable) access to services, some have an “agricultural safety net,” receive relatively high social protection payments, and have better food, environment, and health than urban dwellers. Moving to a city with high unemployment, low wages, and a belief that connections are important to obtain jobs is probably not worth the risk for many rural dwellers.

In addition, many rural people would face the same constraints in Bosnian cities as they do in the countryside. World Bank analysis suggests that half of the rural-urban poverty gap can be explained by educational differences. But poorly educated rural dwellers would also have very few options in the cities. Another one-fifth of the rural-urban poverty gap comes as a result of larger average family size in the countryside and large families in cities are also more likely to be poor.

With neither the “push” nor “pull” factors to encourage rural Bosnians to urbanize, it is little wonder the rural population has remained stagnant over the last 20 years. Those who do urbanize prefer to leave for cities in Austria or Germany, where at least the pull factors are stronger than in Bosnia.

Authors

Simon Davies

]]>
Tue, 21 Jul 2015 09:30:00 -0400Simon Davies
Nearly one in five rural Bosnians is poor, and a rural dweller in Bosnia is twice as likely to be poor as his city-dwelling compatriot. That matters when you consider that the poverty threshold is based on minimum calorie requirements and other basic life essentials. And it matters even more in a country where 60 percent of people still live in the countryside, unchanged since Yugoslav times.
In Bosnia, rural life has been declining over the past 20 years. Literally. It's not unusual to see half-deserted small towns or villages in rural Bosnia. And it is easy to understand why. Bosnia's population declined from a pre-war peak of close to 4.4 million people to just 3.8 million according to the 2013 census—a fall of 13 percent. Rural areas have shared an equal proportion of this decline with urban ones.
I grew up in a small village of 400 people in rural England and, while I'm a fan of cities for many reasons (most eloquently described by Ed Glaeser), rural livelihoods take on a particular importance in the Bosnian case. Why should there be a focus on rural livelihoods in Bosnia?
More mobile than it first seems
Even though a constant 60 percent of the population have been classified as rural for the last 20 years, they are more mobile that it first seems. While municipalities with very low population densities (fewer than 50 persons per square kilometer) did indeed shrink between 1991 and 2013, medium-density municipalities (50 to 100 persons per square kilometer), which are still classified as rural, grew in size, both in absolute terms and as a share of the population. They absorbed people from the very small settlements and also from dense city centers. A recent study confirms these findings and reveal similar patterns in several other European countries. Most visibly, change in night-time lights show that many rural areas in Bosnia grew darker between 1996 and 2010, while suburban and peri-urban areas grew brighter.
Figure 1. Change in night time lights, 1996-2010
Source: World Bank calculations based on Night time lights data provided by NOAA: http://ngdc.noaa.gov/eog/
And rural dwellers don't seem to be doing badly in other ways. Within 3 km of their homes half of rural Bosnians have a clinic and a primary school, and a third can reach a post office. A quarter have a shop within just 100 meters. That gives most rural Bosnians much better access to services than I had growing up in my home village. The same survey found that rural and urban families have similar rates of child vaccinations, child sickness, secondary school attendance, literacy, and access to drinking water. Child malnutrition was even slightly lower in rural areas than in urban ones. Rural dwellers perceive themselves as having several advantages over urban ones; the food, environment, and health are all considered by rural dwellers to be better in the countryside. Administrative data from the Republika Srpska even suggests that rural wages were only 9 percent lower than urban wages in 2012 (and the gap narrowed from 12 percent in 2007). And there's the rub.
Cities ain't so good
Even though the rural poverty rate is higher, rural income lower, and employment somewhat lower, rural folk still don't want to search for streets paved with gold in Bosnia's cities. A reasonable quality of life in rural areas combined with the challenges of urban life keep people in rural areas. Rural households have reasonable (if improvable) access to services, some have an “agricultural safety net,” receive relatively high social protection payments, and have better food, environment, and health than urban dwellers. Moving to a city with high unemployment, low wages, and a belief that connections are important to obtain jobs is probably not worth the risk for many rural dwellers.
In addition, many rural people would face the same constraints in Bosnian cities as they do in the countryside. World Bank analysis suggests that half of the ...
Nearly one in five rural Bosnians is poor, and a rural dweller in Bosnia is twice as likely to be poor as his city-dwelling compatriot. That matters when you consider that the poverty threshold is based on minimum calorie requirements and other ...

Nearly one in five rural Bosnians is poor, and a rural dweller in Bosnia is twice as likely to be poor as his city-dwelling compatriot. That matters when you consider that the poverty threshold is based on minimum calorie requirements and other basic life essentials. And it matters even more in a country where 60 percent of people still live in the countryside, unchanged since Yugoslav times.

In Bosnia, rural life has been declining over the past 20 years. Literally. It’s not unusual to see half-deserted small towns or villages in rural Bosnia. And it is easy to understand why. Bosnia’s population declined from a pre-war peak of close to 4.4 million people to just 3.8 million according to the 2013 census—a fall of 13 percent. Rural areas have shared an equal proportion of this decline with urban ones.

I grew up in a small village of 400 people in rural England and, while I'm a fan of cities for many reasons (most eloquently described by Ed Glaeser), rural livelihoods take on a particular importance in the Bosnian case. Why should there be a focus on rural livelihoods in Bosnia?

More mobile than it first seems

Even though a constant 60 percent of the population have been classified as rural for the last 20 years, they are more mobile that it first seems. While municipalities with very low population densities (fewer than 50 persons per square kilometer) did indeed shrink between 1991 and 2013, medium-density municipalities (50 to 100 persons per square kilometer), which are still classified as rural, grew in size, both in absolute terms and as a share of the population. They absorbed people from the very small settlements and also from dense city centers. A recent study confirms these findings and reveal similar patterns in several other European countries. Most visibly, change in night-time lights show that many rural areas in Bosnia grew darker between 1996 and 2010, while suburban and peri-urban areas grew brighter.

Figure 1. Change in night time lights, 1996-2010

And rural dwellers don’t seem to be doing badly in other ways. Within 3 km of their homes half of rural Bosnians have a clinic and a primary school, and a third can reach a post office. A quarter have a shop within just 100 meters. That gives most rural Bosnians much better access to services than I had growing up in my home village. The same survey found that rural and urban families have similar rates of child vaccinations, child sickness, secondary school attendance, literacy, and access to drinking water. Child malnutrition was even slightly lower in rural areas than in urban ones. Rural dwellers perceive themselves as having several advantages over urban ones; the food, environment, and health are all considered by rural dwellers to be better in the countryside. Administrative data from the Republika Srpska even suggests that rural wages were only 9 percent lower than urban wages in 2012 (and the gap narrowed from 12 percent in 2007). And there’s the rub.

Cities ain’t so good

Even though the rural poverty rate is higher, rural income lower, and employment somewhat lower, rural folk still don’t want to search for streets paved with gold in Bosnia’s cities. A reasonable quality of life in rural areas combined with the challenges of urban life keep people in rural areas. Rural households have reasonable (if improvable) access to services, some have an “agricultural safety net,” receive relatively high social protection payments, and have better food, environment, and health than urban dwellers. Moving to a city with high unemployment, low wages, and a belief that connections are important to obtain jobs is probably not worth the risk for many rural dwellers.

In addition, many rural people would face the same constraints in Bosnian cities as they do in the countryside. World Bank analysis suggests that half of the rural-urban poverty gap can be explained by educational differences. But poorly educated rural dwellers would also have very few options in the cities. Another one-fifth of the rural-urban poverty gap comes as a result of larger average family size in the countryside and large families in cities are also more likely to be poor.

With neither the “push” nor “pull” factors to encourage rural Bosnians to urbanize, it is little wonder the rural population has remained stagnant over the last 20 years. Those who do urbanize prefer to leave for cities in Austria or Germany, where at least the pull factors are stronger than in Bosnia.

Authors

Simon Davies

]]>
http://www.brookings.edu/blogs/ben-bernanke/posts/2015/07/17-greece-and-europe?rssid=europe{A2E2C2F9-2223-4917-A010-BE14B4DDD5FF}http://webfeeds.brookings.edu/~/101597768/0/brookingsrss/topics/europe~Greece-and-Europe-Is-Europe-holding-up-its-end-of-the-bargainGreece and Europe: Is Europe holding up its end of the bargain?

This week the Greek parliament agreed to European demands for tough new austerity measures and structural reforms, defusing (for the moment, at least) the country's sovereign debt crisis. Now is a good time to ask: Is Europe holding up its end of the bargain? Specifically, is the euro zone's leadership delivering the broad-based economic recovery that is needed to give stressed countries like Greece a reasonable chance to meet their growth, employment, and fiscal objectives? Over the longer term, these questions are evidently of far greater consequence for Europe, and for the world, than are questions about whether tiny Greece can meet its fiscal obligations.

Unfortunately, the answers to these questions are also obvious. Since the global financial crisis, economic outcomes in the euro zone have been deeply disappointing. The failure of European economic policy has two, closely related, aspects: (1) the weak performance of the euro zone as a whole; and (2) the highly asymmetric outcomes among countries within the euro zone. The poor overall performance is illustrated by Figure 1 below, which shows the euro area unemployment rate since 2007, with the U.S. unemployment rate shown for comparison.1

In late 2009 and early 2010 unemployment rates in Europe and the United States were roughly equal, at about 10 percent of the labor force. Today the unemployment rate in the United States is 5.3 percent, while the unemployment rate in the euro zone is more than 11 percent. Not incidentally, a very large share of euro area unemployment consists of younger workers; the inability of these workers to gain skills and work experience will adversely affect Europe's longer-term growth potential.

The unevenness in economic outcomes among countries within the euro zone is illustrated by Figure 2, which compares the unemployment rate in Germany (which accounts for about 30 percent of the euro area economy) with that of the remainder of the euro zone.2

Currently, the unemployment rate in the euro zone ex Germany exceeds 13 percent, compared to less than 5 percent in Germany. Other economic data show similar discrepancies within the euro zone between the "north" (including Germany) and the "south."

The patterns illustrated in Figures 1 and 2 pose serious medium-term challenges for the euro area. The promise of the euro was both to increase prosperity and to foster closer European integration. But current economic conditions are hardly building public confidence in European economic policymakers or providing an environment conducive to fiscal stabilization and economic reform; and European solidarity will not flower under a system which produces such disparate outcomes among countries.

The risks for the European project posed by these economic developments are real, no matter what the reasons for them may be. In fact, the reasons are not so difficult to identify. The slow recovery from the crisis of the euro zone as a whole is the result, among other factors, of (1) political resistance that delayed by many years the implementation of sufficiently aggressive monetary policies by the European Central Bank; (2) excessively tight fiscal policies, especially in countries like Germany that have some amount of "fiscal space" and thus no immediate need to tighten their belts; and (3) delays in taking the necessary steps, analogous to the banking "stress tests" in the United States in the spring of 2009, to restore confidence in the banking system. I would not, by the way, put "structural rigidities" very high on this list. Structural reforms are important for long-run growth, but cost-saving measures are less relevant when many workers are already idle; moreover, structural problems have existed in Europe for a long time and so can't explain recent declines in performance.

What about the strength of the German economy (and a few others) relative to the rest of the euro zone, as illustrated by Figure 2? As I discussed in an earlier post, Germany has benefited from having a currency, the euro, with an international value that is significantly weaker than a hypothetical German-only currency would be. Germany's membership in the euro area has thus proved a major boost to German exports, relative to what they would be with an independent currency.

Nobody is suggesting that the well-known efficiency and quality of German production are anything other than good things, or that German firms should not strive to compete in export markets. What is a problem, however, is that Germany has effectively chosen to rely on foreign rather than domestic demand to ensure full employment at home, as shown in its extraordinarily large and persistent trade surplus, currently almost 7.5 percent of the country's GDP. Within a fixed-exchange-rate system like the euro currency area, such persistent imbalances are unhealthy, reducing demand and growth in trading partners and generating potentially destabilizing financial flows.3 Importantly, Germany's large trade surplus puts all the burden of adjustment on countries with trade deficits, who must undergo painful deflation of wages and other costs to become more competitive. Germany could help restore balance within the euro zone and raise the currency area's overall pace of growth by increasing spending at home, through measures like increasing investment in infrastructure, pushing for wage increases for German workers (to raise domestic consumption), and engaging in structural reforms to encourage more domestic demand. Such measures would entail little or no short-run sacrifice for Germans, and they would serve the country's longer-term interests by reducing the risks of eventual euro breakup.

I'll end with two concrete proposals. First, negotiations over Greece's evidently unsustainable debt burden should be based on explicit assumptions about European growth. If European growth turns out to be weaker than projected, which in turn would make it tougher for Greece to grow, then Greece should be allowed greater leeway after the fact in meeting its fiscal targets.

Second, it's time for the leaders of the euro zone to address the problem of large and sustained trade imbalances (either surpluses or deficits), which, in a fixed-exchange-rate system like the euro zone, impose significant costs and risks. For example, the Stability and Growth Pact, which imposes rules and penalties with the goal of limiting fiscal deficits, could be extended to reference trade imbalances as well. Simply recognizing officially that creditor as well as debtor countries have an obligation to adjust over time (through fiscal and structural measures, for example) would be an important step in the right direction.

1 The euro and U.S. unemployment rates are not precisely comparable, but what matters for my purposes here is the overall pattern and direction of change.

2 The unemployment rate for the euro zone ex Germany shown in Figure 2 has been "backed out" of the official data using official figures on unemployment rates and the number of unemployed for Germany and for the euro area as a whole.

3 Some have pointed out that much of Germany’s trade surplus is with countries outside the euro zone. That observation is largely irrelevant to my argument. The German surplus still likely displaces other euro zone exports to third countries, both directly and by leading to a euro that is stronger than it would be otherwise. Moreover, weak domestic demand in Germany means less demand for imports as well.

Comments are now closed for this post.

Authors

]]>
Fri, 17 Jul 2015 10:20:00 -0400Ben S. Bernanke
This week the Greek parliament agreed to European demands for tough new austerity measures and structural reforms, defusing (for the moment, at least) the country's sovereign debt crisis. Now is a good time to ask: Is Europe holding up its end of the bargain? Specifically, is the euro zone's leadership delivering the broad-based economic recovery that is needed to give stressed countries like Greece a reasonable chance to meet their growth, employment, and fiscal objectives? Over the longer term, these questions are evidently of far greater consequence for Europe, and for the world, than are questions about whether tiny Greece can meet its fiscal obligations.
Unfortunately, the answers to these questions are also obvious. Since the global financial crisis, economic outcomes in the euro zone have been deeply disappointing. The failure of European economic policy has two, closely related, aspects: (1) the weak performance of the euro zone as a whole; and (2) the highly asymmetric outcomes among countries within the euro zone. The poor overall performance is illustrated by Figure 1 below, which shows the euro area unemployment rate since 2007, with the U.S. unemployment rate shown for comparison.1
In late 2009 and early 2010 unemployment rates in Europe and the United States were roughly equal, at about 10 percent of the labor force. Today the unemployment rate in the United States is 5.3 percent, while the unemployment rate in the euro zone is more than 11 percent. Not incidentally, a very large share of euro area unemployment consists of younger workers; the inability of these workers to gain skills and work experience will adversely affect Europe's longer-term growth potential.
The unevenness in economic outcomes among countries within the euro zone is illustrated by Figure 2, which compares the unemployment rate in Germany (which accounts for about 30 percent of the euro area economy) with that of the remainder of the euro zone.2
Currently, the unemployment rate in the euro zone ex Germany exceeds 13 percent, compared to less than 5 percent in Germany. Other economic data show similar discrepancies within the euro zone between the "north" (including Germany) and the "south."
The patterns illustrated in Figures 1 and 2 pose serious medium-term challenges for the euro area. The promise of the euro was both to increase prosperity and to foster closer European integration. But current economic conditions are hardly building public confidence in European economic policymakers or providing an environment conducive to fiscal stabilization and economic reform; and European solidarity will not flower under a system which produces such disparate outcomes among countries.
The risks for the European project posed by these economic developments are real, no matter what the reasons for them may be. In fact, the reasons are not so difficult to identify. The slow recovery from the crisis of the euro zone as a whole is the result, among other factors, of (1) political resistance that delayed by many years the implementation of sufficiently aggressive monetary policies by the European Central Bank; (2) excessively tight fiscal policies, especially in countries like Germany that have some amount of "fiscal space" and thus no immediate need to tighten their belts; and (3) delays in taking the necessary steps, analogous to the banking "stress tests" in the United States in the spring of 2009, to restore confidence in the banking system. I would not, by the way, put "structural rigidities" very high on this list. Structural reforms are important for long-run growth, but cost-saving measures are less relevant when many workers are already idle; moreover, structural problems have existed in Europe for a long time and so can't explain recent declines in performance.
What about the strength of the German economy (and a few others) relative to the rest of the euro zone, as illustrated ...
This week the Greek parliament agreed to European demands for tough new austerity measures and structural reforms, defusing (for the moment, at least) the country's sovereign debt crisis. Now is a good time to ask: Is Europe holding up its end of ...

This week the Greek parliament agreed to European demands for tough new austerity measures and structural reforms, defusing (for the moment, at least) the country's sovereign debt crisis. Now is a good time to ask: Is Europe holding up its end of the bargain? Specifically, is the euro zone's leadership delivering the broad-based economic recovery that is needed to give stressed countries like Greece a reasonable chance to meet their growth, employment, and fiscal objectives? Over the longer term, these questions are evidently of far greater consequence for Europe, and for the world, than are questions about whether tiny Greece can meet its fiscal obligations.

Unfortunately, the answers to these questions are also obvious. Since the global financial crisis, economic outcomes in the euro zone have been deeply disappointing. The failure of European economic policy has two, closely related, aspects: (1) the weak performance of the euro zone as a whole; and (2) the highly asymmetric outcomes among countries within the euro zone. The poor overall performance is illustrated by Figure 1 below, which shows the euro area unemployment rate since 2007, with the U.S. unemployment rate shown for comparison.1

In late 2009 and early 2010 unemployment rates in Europe and the United States were roughly equal, at about 10 percent of the labor force. Today the unemployment rate in the United States is 5.3 percent, while the unemployment rate in the euro zone is more than 11 percent. Not incidentally, a very large share of euro area unemployment consists of younger workers; the inability of these workers to gain skills and work experience will adversely affect Europe's longer-term growth potential.

The unevenness in economic outcomes among countries within the euro zone is illustrated by Figure 2, which compares the unemployment rate in Germany (which accounts for about 30 percent of the euro area economy) with that of the remainder of the euro zone.2

Currently, the unemployment rate in the euro zone ex Germany exceeds 13 percent, compared to less than 5 percent in Germany. Other economic data show similar discrepancies within the euro zone between the "north" (including Germany) and the "south."

The patterns illustrated in Figures 1 and 2 pose serious medium-term challenges for the euro area. The promise of the euro was both to increase prosperity and to foster closer European integration. But current economic conditions are hardly building public confidence in European economic policymakers or providing an environment conducive to fiscal stabilization and economic reform; and European solidarity will not flower under a system which produces such disparate outcomes among countries.

The risks for the European project posed by these economic developments are real, no matter what the reasons for them may be. In fact, the reasons are not so difficult to identify. The slow recovery from the crisis of the euro zone as a whole is the result, among other factors, of (1) political resistance that delayed by many years the implementation of sufficiently aggressive monetary policies by the European Central Bank; (2) excessively tight fiscal policies, especially in countries like Germany that have some amount of "fiscal space" and thus no immediate need to tighten their belts; and (3) delays in taking the necessary steps, analogous to the banking "stress tests" in the United States in the spring of 2009, to restore confidence in the banking system. I would not, by the way, put "structural rigidities" very high on this list. Structural reforms are important for long-run growth, but cost-saving measures are less relevant when many workers are already idle; moreover, structural problems have existed in Europe for a long time and so can't explain recent declines in performance.

What about the strength of the German economy (and a few others) relative to the rest of the euro zone, as illustrated by Figure 2? As I discussed in an earlier post, Germany has benefited from having a currency, the euro, with an international value that is significantly weaker than a hypothetical German-only currency would be. Germany's membership in the euro area has thus proved a major boost to German exports, relative to what they would be with an independent currency.

Nobody is suggesting that the well-known efficiency and quality of German production are anything other than good things, or that German firms should not strive to compete in export markets. What is a problem, however, is that Germany has effectively chosen to rely on foreign rather than domestic demand to ensure full employment at home, as shown in its extraordinarily large and persistent trade surplus, currently almost 7.5 percent of the country's GDP. Within a fixed-exchange-rate system like the euro currency area, such persistent imbalances are unhealthy, reducing demand and growth in trading partners and generating potentially destabilizing financial flows.3 Importantly, Germany's large trade surplus puts all the burden of adjustment on countries with trade deficits, who must undergo painful deflation of wages and other costs to become more competitive. Germany could help restore balance within the euro zone and raise the currency area's overall pace of growth by increasing spending at home, through measures like increasing investment in infrastructure, pushing for wage increases for German workers (to raise domestic consumption), and engaging in structural reforms to encourage more domestic demand. Such measures would entail little or no short-run sacrifice for Germans, and they would serve the country's longer-term interests by reducing the risks of eventual euro breakup.

I'll end with two concrete proposals. First, negotiations over Greece's evidently unsustainable debt burden should be based on explicit assumptions about European growth. If European growth turns out to be weaker than projected, which in turn would make it tougher for Greece to grow, then Greece should be allowed greater leeway after the fact in meeting its fiscal targets.

Second, it's time for the leaders of the euro zone to address the problem of large and sustained trade imbalances (either surpluses or deficits), which, in a fixed-exchange-rate system like the euro zone, impose significant costs and risks. For example, the Stability and Growth Pact, which imposes rules and penalties with the goal of limiting fiscal deficits, could be extended to reference trade imbalances as well. Simply recognizing officially that creditor as well as debtor countries have an obligation to adjust over time (through fiscal and structural measures, for example) would be an important step in the right direction.

1 The euro and U.S. unemployment rates are not precisely comparable, but what matters for my purposes here is the overall pattern and direction of change.

2 The unemployment rate for the euro zone ex Germany shown in Figure 2 has been "backed out" of the official data using official figures on unemployment rates and the number of unemployed for Germany and for the euro area as a whole.

3 Some have pointed out that much of Germany’s trade surplus is with countries outside the euro zone. That observation is largely irrelevant to my argument. The German surplus still likely displaces other euro zone exports to third countries, both directly and by leading to a euro that is stronger than it would be otherwise. Moreover, weak domestic demand in Germany means less demand for imports as well.

Comments are now closed for this post.

Authors

]]>
http://www.brookings.edu/blogs/order-from-chaos/posts/2015/07/17-south-caucasus-western-power-moffatt?rssid=europe{277D9B58-91A3-4773-8147-B5175BD23F0B}http://webfeeds.brookings.edu/~/101593364/0/brookingsrss/topics/europe~The-South-Caucasus-and-the-limits-of-Western-powerThe South Caucasus and the limits of Western power

If Russia is a “riddle wrapped in a mystery inside an enigma” as Churchill famously claimed, then the South Caucasus region is a conundrum cloaked in obscurity and tangled in Gordian knots. The three countries of the region—Armenia, Azerbaijan, and Georgia—have distinct ethnic, cultural, religious, linguistic, and geopolitical identities that have been shaped and hardened over a millennia-long history in the craggy Caucasus mountains. But despite the tremendous differences among the constituent countries, they are typically grouped together in Western policy considerations. This grouping has led to shortsighted policy approaches at times, but it is naive to expect the average policymaker in Washington or Brussels to appreciate the granular complexity of a South Dakota-sized region in Eurasia. That said, the countries of the South Caucasus today share a similar and arguably unique challenge for Western policymakers.

Stability and integration in the region are clearly important to the West—the region is a strategic global crossroads and a traditional scrum of great power interests. But the region is also of relatively low priority, and the West has limited capacity for major initiatives that might solve the region’s intractable problems. Within this reality, there is still much that the United States, Europe, and particularly Turkey can do “below the radar” to encourage the countries of the region onto a better trajectory. Together with my colleagues Fiona Hill and Kemal Kirişci, we have published a new report, Retracing the Caucasian Circle—Considerations and Constraints for U.S., EU, and Turkish Engagement in the South Caucasus, that proposes a policy of “soft regionalism” that focuses on long-term efforts, mostly at the societal level, that might move toward overcoming the fragility and fragmentation of the region.

High hopes, dashed

Soft regionalism is not the traditional Western policy in the region. Immediately after the collapse of the Soviet Union, the South Caucasus countries drew considerable Western attention for three principal reasons: The newly independent nations held untapped potential for developing a new route for exporting Caspian hydrocarbons; the West aspired to further its associations with Euro-Atlantic institutions to enhance security and stability on the periphery of Europe; and the West had an interest in offsetting long-standing Russian and Iranian influences. The countries appeared keen to transform their states into modern democratic societies, integrate their countries into the global economy, and forge new political and security relations with the West. In the late 1990s and early 2000s, this orientation—combined with assistance from the United States and Europe—led to considerable economic and institutional developments and reforms in the South Caucasus, including the launch of the Baku-Tbilisi-Ceyhan oil pipeline in May 2005 and a promise to Georgia in 2008 that it would one day join NATO.

Since 2008, however, the trajectory of the South Caucasus has radically changed. The brief Georgian-Russian war in August of that year starkly revealed Russia’s interpretation of the region as part of its privileged sphere of interests. For the West, other foreign policy crises—from the Arab Spring to Syria and Iran—overwhelmed its agenda and led to an unintentional disengagement in the South Caucasus. The global economic downturn eroded its international aid financing, and the eurozone crisis diminished both the attractiveness of EU integration for aspirants and the EU’s own appetite for enlargement. Western-supported efforts to bring about greater stability and regional integration, including the EU’s Eastern Partnership framework and the diplomatic push to normalize relations between Turkey and Armenia, have either foundered or backfired. Lastly, changes in the global energy market, including diminished European demand for gas, have revised strategic calculations about the value of Caspian resources for European energy security.

More recently, Russia’s annexation of Crimea and its backing of separatists in Eastern Ukraine have heightened the sense of insecurity and instability in the South Caucasus and exposed the risks for post-Soviet states of pursuing a Western orientation. Russian assertiveness has also reignited long simmering tensions surrounding the unresolved conflicts in the South Caucasus, especially in Nagorno-Karabakh where violence has reached its highest level since the ceasefire was signed in 1994.

Ready for the long haul?

The West now finds itself looking toward the South Caucasus with fewer resources and less overall foreign policy capacity, while the three countries themselves no longer share an unambiguous orientation toward Euro-Atlantic integration. Across the region, government officials and the foreign policy elites have become cynical about Western intentions and commitment after the failure of past policy initiatives. The United States and Europe have struggled to formulate a sustainable policy approach that adapts its vision for the region and the tools available to engage it with the changing geopolitical realities.

This reality means that the United States and EU need to resist the urge to “fix” the region through grand gestures that will ultimately lack sustainability. To make the most of limited capacity and sustain efforts over the long term, U.S. and EU engagement should complement and potentially build upon Turkey’s regional involvement. More generally, for the countries to move forward in resolving conflicts and improving internal and external relations, an informal regional understanding needs to be created that could encourage trade, civil society contacts, and conflict management exercises. The absence of formal regional institutions, or even a shared sense of belonging, remains a fundamental impediment to untangling the knots of the South Caucasus and realizing its potential.

This is a long-term policy, requiring great strategic patience. It lacks the satisfaction of grand pronouncements and media-friendly summits. But it is a realistic expression of both Western interests and Western capacities, and it holds out hope of effectively promoting regional integration into a more stable order.

Authors

Andrew Moffatt

]]>
Fri, 17 Jul 2015 10:00:00 -0400Andrew Moffatt
If Russia is a “riddle wrapped in a mystery inside an enigma” as Churchill famously claimed, then the South Caucasus region is a conundrum cloaked in obscurity and tangled in Gordian knots. The three countries of the region—Armenia, Azerbaijan, and Georgia—have distinct ethnic, cultural, religious, linguistic, and geopolitical identities that have been shaped and hardened over a millennia-long history in the craggy Caucasus mountains. But despite the tremendous differences among the constituent countries, they are typically grouped together in Western policy considerations. This grouping has led to shortsighted policy approaches at times, but it is naive to expect the average policymaker in Washington or Brussels to appreciate the granular complexity of a South Dakota-sized region in Eurasia. That said, the countries of the South Caucasus today share a similar and arguably unique challenge for Western policymakers.
Stability and integration in the region are clearly important to the West—the region is a strategic global crossroads and a traditional scrum of great power interests. But the region is also of relatively low priority, and the West has limited capacity for major initiatives that might solve the region's intractable problems. Within this reality, there is still much that the United States, Europe, and particularly Turkey can do “below the radar” to encourage the countries of the region onto a better trajectory. Together with my colleagues Fiona Hill and Kemal Kirişci, we have published a new report, Retracing the Caucasian Circle—Considerations and Constraints for U.S., EU, and Turkish Engagement in the South Caucasus, that proposes a policy of “soft regionalism” that focuses on long-term efforts, mostly at the societal level, that might move toward overcoming the fragility and fragmentation of the region.
High hopes, dashed
Soft regionalism is not the traditional Western policy in the region. Immediately after the collapse of the Soviet Union, the South Caucasus countries drew considerable Western attention for three principal reasons: The newly independent nations held untapped potential for developing a new route for exporting Caspian hydrocarbons; the West aspired to further its associations with Euro-Atlantic institutions to enhance security and stability on the periphery of Europe; and the West had an interest in offsetting long-standing Russian and Iranian influences. The countries appeared keen to transform their states into modern democratic societies, integrate their countries into the global economy, and forge new political and security relations with the West. In the late 1990s and early 2000s, this orientation—combined with assistance from the United States and Europe—led to considerable economic and institutional developments and reforms in the South Caucasus, including the launch of the Baku-Tbilisi-Ceyhan oil pipeline in May 2005 and a promise to Georgia in 2008 that it would one day join NATO.
Since 2008, however, the trajectory of the South Caucasus has radically changed. The brief Georgian-Russian war in August of that year starkly revealed Russia's interpretation of the region as part of its privileged sphere of interests. For the West, other foreign policy crises—from the Arab Spring to Syria and Iran—overwhelmed its agenda and led to an unintentional disengagement in the South Caucasus. The global economic downturn eroded its international aid financing, and the eurozone crisis diminished both the attractiveness of EU integration for aspirants and the EU's own appetite for enlargement. Western-supported efforts to bring about greater stability and regional integration, including the EU's Eastern Partnership framework and the diplomatic push to normalize relations between Turkey and Armenia, have either foundered or backfired. Lastly, changes in the global energy market, including ...
If Russia is a “riddle wrapped in a mystery inside an enigma” as Churchill famously claimed, then the South Caucasus region is a conundrum cloaked in obscurity and tangled in Gordian knots. The three countries of the region—

If Russia is a “riddle wrapped in a mystery inside an enigma” as Churchill famously claimed, then the South Caucasus region is a conundrum cloaked in obscurity and tangled in Gordian knots. The three countries of the region—Armenia, Azerbaijan, and Georgia—have distinct ethnic, cultural, religious, linguistic, and geopolitical identities that have been shaped and hardened over a millennia-long history in the craggy Caucasus mountains. But despite the tremendous differences among the constituent countries, they are typically grouped together in Western policy considerations. This grouping has led to shortsighted policy approaches at times, but it is naive to expect the average policymaker in Washington or Brussels to appreciate the granular complexity of a South Dakota-sized region in Eurasia. That said, the countries of the South Caucasus today share a similar and arguably unique challenge for Western policymakers.

Stability and integration in the region are clearly important to the West—the region is a strategic global crossroads and a traditional scrum of great power interests. But the region is also of relatively low priority, and the West has limited capacity for major initiatives that might solve the region’s intractable problems. Within this reality, there is still much that the United States, Europe, and particularly Turkey can do “below the radar” to encourage the countries of the region onto a better trajectory. Together with my colleagues Fiona Hill and Kemal Kirişci, we have published a new report, Retracing the Caucasian Circle—Considerations and Constraints for U.S., EU, and Turkish Engagement in the South Caucasus, that proposes a policy of “soft regionalism” that focuses on long-term efforts, mostly at the societal level, that might move toward overcoming the fragility and fragmentation of the region.

High hopes, dashed

Soft regionalism is not the traditional Western policy in the region. Immediately after the collapse of the Soviet Union, the South Caucasus countries drew considerable Western attention for three principal reasons: The newly independent nations held untapped potential for developing a new route for exporting Caspian hydrocarbons; the West aspired to further its associations with Euro-Atlantic institutions to enhance security and stability on the periphery of Europe; and the West had an interest in offsetting long-standing Russian and Iranian influences. The countries appeared keen to transform their states into modern democratic societies, integrate their countries into the global economy, and forge new political and security relations with the West. In the late 1990s and early 2000s, this orientation—combined with assistance from the United States and Europe—led to considerable economic and institutional developments and reforms in the South Caucasus, including the launch of the Baku-Tbilisi-Ceyhan oil pipeline in May 2005 and a promise to Georgia in 2008 that it would one day join NATO.

Since 2008, however, the trajectory of the South Caucasus has radically changed. The brief Georgian-Russian war in August of that year starkly revealed Russia’s interpretation of the region as part of its privileged sphere of interests. For the West, other foreign policy crises—from the Arab Spring to Syria and Iran—overwhelmed its agenda and led to an unintentional disengagement in the South Caucasus. The global economic downturn eroded its international aid financing, and the eurozone crisis diminished both the attractiveness of EU integration for aspirants and the EU’s own appetite for enlargement. Western-supported efforts to bring about greater stability and regional integration, including the EU’s Eastern Partnership framework and the diplomatic push to normalize relations between Turkey and Armenia, have either foundered or backfired. Lastly, changes in the global energy market, including diminished European demand for gas, have revised strategic calculations about the value of Caspian resources for European energy security.

More recently, Russia’s annexation of Crimea and its backing of separatists in Eastern Ukraine have heightened the sense of insecurity and instability in the South Caucasus and exposed the risks for post-Soviet states of pursuing a Western orientation. Russian assertiveness has also reignited long simmering tensions surrounding the unresolved conflicts in the South Caucasus, especially in Nagorno-Karabakh where violence has reached its highest level since the ceasefire was signed in 1994.

Ready for the long haul?

The West now finds itself looking toward the South Caucasus with fewer resources and less overall foreign policy capacity, while the three countries themselves no longer share an unambiguous orientation toward Euro-Atlantic integration. Across the region, government officials and the foreign policy elites have become cynical about Western intentions and commitment after the failure of past policy initiatives. The United States and Europe have struggled to formulate a sustainable policy approach that adapts its vision for the region and the tools available to engage it with the changing geopolitical realities.

This reality means that the United States and EU need to resist the urge to “fix” the region through grand gestures that will ultimately lack sustainability. To make the most of limited capacity and sustain efforts over the long term, U.S. and EU engagement should complement and potentially build upon Turkey’s regional involvement. More generally, for the countries to move forward in resolving conflicts and improving internal and external relations, an informal regional understanding needs to be created that could encourage trade, civil society contacts, and conflict management exercises. The absence of formal regional institutions, or even a shared sense of belonging, remains a fundamental impediment to untangling the knots of the South Caucasus and realizing its potential.

This is a long-term policy, requiring great strategic patience. It lacks the satisfaction of grand pronouncements and media-friendly summits. But it is a realistic expression of both Western interests and Western capacities, and it holds out hope of effectively promoting regional integration into a more stable order.

As troops marched along the Champs Elysées this week to celebrate Bastille Day in a traditional display of French power and grandeur, French leaders likely reflected on France’s standing in the world. As befits any French topic, it is something of a paradox. On the one hand, France has remained an economic and political power in an increasingly competitive world. France’s economy thrives under international competition and it punches well above its weight in geopolitics. But on the other, it faces major economic and political challenges and its leaders appear uncertain about France’s political capacity to continue to adapt.

France is the European Union’s second largest country and the world’s 6th largest economy. It is home to an impressive number of multinational companies in sectors ranging from energy and transport to luxury brands. Productivity per hour worked is among the highest in the world, the health system is one of the globe’s best, and the country’s demographic prospects are better than most European countries. Meanwhile, it is a permanent member of the U.N. Security Council and Europe’s main military power. And as the recent outcome of the Greek eurocrisis demonstrated, France is still a heavyweight in the EU, probably the only one to really stand up to Germany.

But the French republic faces major economic challenges. As the Prime Minister’s office wrote in a recent report: “The competitiveness of businesses has gradually worsened since the early 2000s, leading to a slump in the margins of companies and a fall in our expert market share.” France needs better control of public expenditures, it adds, since “they represent a very considerable portion of national wealth.” Another major problem has to do with subsidized jobs, which have contributed to a large deficit in the unemployment insurance fund. While Germany reformed its labor market 10 years ago, France did not.

The pro-business agenda

In a recent meeting at Brookings, the man charged with making France more competitive—Emmanuel Macron, minister for the economy, industry and digital affairs—emphasized the need to “streamline government organization, increase investment promotion, reduce red tape, and modernize our economy.”

Macron is not your usual French minister. Only 37 years old, he entered politics just a few years ago after working as an investment banker on Wall Street and elsewhere. His background likely explains his ongoing efforts to “transform French capitalism” in order to “unlock the economy.”

His flagship policy proposal—the pro-business, 400-article Economic Growth and Activity Bill—aims to reduce the public deficit, increase competitiveness, and spur an overall modernization of the French economy. It will open public transportation to more competition, with some routes benefiting from privately-run bus services alongside state-operated train lines. In some designated “special international tourism zones,” commerce will be open seven days a week. Meanwhile, small entrepreneurs will be able to sell their business more easily—in some cases without employee representatives’ approval.

It’s no surprise that such a plan has split the governing Socialist party, with a number of members of parliament opposing the reforms. One left-wing senator said the draft law “calls into question all the historic battles of the left,” referring to working on Sundays (a decision aimed at encouraging tourism, a major sector of the French economy). The bill was debated for 437 hours, underwent 1,000 amendments, and traveled back and forth between the two houses of parliament for four months before finally being passed on July 10. The government is now awaiting the Constitutional Council’s final word, expected within the next month. The “Macron law” is no small achievement in a country where—like in Greece, for example—powerful unions traditionally oppose these kinds of economic reforms. Whether this could serve as a model to other European economies facing economic difficulties is an open question.

Is reform good politics?

French politicians will soon re-enter campaign season, with regional polls scheduled for December and a presidential election in 2017. In a country where citizens are accustomed to generous benefits and a wide safety net, politicians are wary of taking risks with economic policy. The economic environment is already shaky, and it remains to be seen whether the Macron measures will really strengthen the French economy—and in particular, reduce the country’s record-high unemployment of 10.5 percent.

There are already some signs that the country’s new pro-business stance is helping: More start-up companies are emerging, for instance, and a spirit of entrepreneurship is spreading among young graduates. Meanwhile, the government has launched a new entrepreneur visa called the French Tech Ticket for foreign investors in technology and digital innovation. It is also offering more in grants for those sectors, aimed at attracting back French entrepreneurs who had moved abroad.

Like its neighbors, but even more so because of its strong sense of social justice and a tradition of protecting existing benefits, France is facing huge economic challenges. It needs to shake up the malaise that has riveted its domestic economy for some time. Left-wing socialist party members in France have consistently tried to slow down the reform agenda—but it’s actually pro-business measures that will help France to better cope with globalization, no matter who wins the next presidential election in 2017.

Authors

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Thu, 16 Jul 2015 10:45:00 -0400Philippe Le Corre
As troops marched along the Champs Elysées this week to celebrate Bastille Day in a traditional display of French power and grandeur, French leaders likely reflected on France's standing in the world. As befits any French topic, it is something of a paradox. On the one hand, France has remained an economic and political power in an increasingly competitive world. France's economy thrives under international competition and it punches well above its weight in geopolitics. But on the other, it faces major economic and political challenges and its leaders appear uncertain about France's political capacity to continue to adapt.
France is the European Union's second largest country and the world's 6th largest economy. It is home to an impressive number of multinational companies in sectors ranging from energy and transport to luxury brands. Productivity per hour worked is among the highest in the world, the health system is one of the globe's best, and the country's demographic prospects are better than most European countries. Meanwhile, it is a permanent member of the U.N. Security Council and Europe's main military power. And as the recent outcome of the Greek eurocrisis demonstrated, France is still a heavyweight in the EU, probably the only one to really stand up to Germany.
But the French republic faces major economic challenges. As the Prime Minister's office wrote in a recent report: “The competitiveness of businesses has gradually worsened since the early 2000s, leading to a slump in the margins of companies and a fall in our expert market share.” France needs better control of public expenditures, it adds, since “they represent a very considerable portion of national wealth.” Another major problem has to do with subsidized jobs, which have contributed to a large deficit in the unemployment insurance fund. While Germany reformed its labor market 10 years ago, France did not.
The pro-business agenda
In a recent meeting at Brookings, the man charged with making France more competitive—Emmanuel Macron, minister for the economy, industry and digital affairs—emphasized the need to “streamline government organization, increase investment promotion, reduce red tape, and modernize our economy.”
Macron is not your usual French minister. Only 37 years old, he entered politics just a few years ago after working as an investment banker on Wall Street and elsewhere. His background likely explains his ongoing efforts to “transform French capitalism” in order to “unlock the economy.”
His flagship policy proposal—the pro-business, 400-article Economic Growth and Activity Bill—aims to reduce the public deficit, increase competitiveness, and spur an overall modernization of the French economy. It will open public transportation to more competition, with some routes benefiting from privately-run bus services alongside state-operated train lines. In some designated “special international tourism zones,” commerce will be open seven days a week. Meanwhile, small entrepreneurs will be able to sell their business more easily—in some cases without employee representatives' approval.
It's no surprise that such a plan has split the governing Socialist party, with a number of members of parliament opposing the reforms. One left-wing senator said the draft law “calls into question all the historic battles of the left,” referring to working on Sundays (a decision aimed at encouraging tourism, a major sector of the French economy). The bill was debated for 437 hours, underwent 1,000 amendments, and traveled back and forth between the two houses of parliament for four months before finally being passed on July 10. The government is now awaiting the Constitutional Council's final word, expected within the next month. The “Macron law” is no small achievement in a country where—like in Greece, ...
As troops marched along the Champs Elysées this week to celebrate Bastille Day in a traditional display of French power and grandeur, French leaders likely reflected on France's standing in the world. As befits any French topic, it is ...

As troops marched along the Champs Elysées this week to celebrate Bastille Day in a traditional display of French power and grandeur, French leaders likely reflected on France’s standing in the world. As befits any French topic, it is something of a paradox. On the one hand, France has remained an economic and political power in an increasingly competitive world. France’s economy thrives under international competition and it punches well above its weight in geopolitics. But on the other, it faces major economic and political challenges and its leaders appear uncertain about France’s political capacity to continue to adapt.

France is the European Union’s second largest country and the world’s 6th largest economy. It is home to an impressive number of multinational companies in sectors ranging from energy and transport to luxury brands. Productivity per hour worked is among the highest in the world, the health system is one of the globe’s best, and the country’s demographic prospects are better than most European countries. Meanwhile, it is a permanent member of the U.N. Security Council and Europe’s main military power. And as the recent outcome of the Greek eurocrisis demonstrated, France is still a heavyweight in the EU, probably the only one to really stand up to Germany.

But the French republic faces major economic challenges. As the Prime Minister’s office wrote in a recent report: “The competitiveness of businesses has gradually worsened since the early 2000s, leading to a slump in the margins of companies and a fall in our expert market share.” France needs better control of public expenditures, it adds, since “they represent a very considerable portion of national wealth.” Another major problem has to do with subsidized jobs, which have contributed to a large deficit in the unemployment insurance fund. While Germany reformed its labor market 10 years ago, France did not.

The pro-business agenda

In a recent meeting at Brookings, the man charged with making France more competitive—Emmanuel Macron, minister for the economy, industry and digital affairs—emphasized the need to “streamline government organization, increase investment promotion, reduce red tape, and modernize our economy.”

Macron is not your usual French minister. Only 37 years old, he entered politics just a few years ago after working as an investment banker on Wall Street and elsewhere. His background likely explains his ongoing efforts to “transform French capitalism” in order to “unlock the economy.”

His flagship policy proposal—the pro-business, 400-article Economic Growth and Activity Bill—aims to reduce the public deficit, increase competitiveness, and spur an overall modernization of the French economy. It will open public transportation to more competition, with some routes benefiting from privately-run bus services alongside state-operated train lines. In some designated “special international tourism zones,” commerce will be open seven days a week. Meanwhile, small entrepreneurs will be able to sell their business more easily—in some cases without employee representatives’ approval.

It’s no surprise that such a plan has split the governing Socialist party, with a number of members of parliament opposing the reforms. One left-wing senator said the draft law “calls into question all the historic battles of the left,” referring to working on Sundays (a decision aimed at encouraging tourism, a major sector of the French economy). The bill was debated for 437 hours, underwent 1,000 amendments, and traveled back and forth between the two houses of parliament for four months before finally being passed on July 10. The government is now awaiting the Constitutional Council’s final word, expected within the next month. The “Macron law” is no small achievement in a country where—like in Greece, for example—powerful unions traditionally oppose these kinds of economic reforms. Whether this could serve as a model to other European economies facing economic difficulties is an open question.

Is reform good politics?

French politicians will soon re-enter campaign season, with regional polls scheduled for December and a presidential election in 2017. In a country where citizens are accustomed to generous benefits and a wide safety net, politicians are wary of taking risks with economic policy. The economic environment is already shaky, and it remains to be seen whether the Macron measures will really strengthen the French economy—and in particular, reduce the country’s record-high unemployment of 10.5 percent.

There are already some signs that the country’s new pro-business stance is helping: More start-up companies are emerging, for instance, and a spirit of entrepreneurship is spreading among young graduates. Meanwhile, the government has launched a new entrepreneur visa called the French Tech Ticket for foreign investors in technology and digital innovation. It is also offering more in grants for those sectors, aimed at attracting back French entrepreneurs who had moved abroad.

Like its neighbors, but even more so because of its strong sense of social justice and a tradition of protecting existing benefits, France is facing huge economic challenges. It needs to shake up the malaise that has riveted its domestic economy for some time. Left-wing socialist party members in France have consistently tried to slow down the reform agenda—but it’s actually pro-business measures that will help France to better cope with globalization, no matter who wins the next presidential election in 2017.

Authors

]]>
http://www.brookings.edu/research/reports/2015/07/south-caucasus-engagement?rssid=europe{057B963A-016C-41E9-AC5F-222DEB2D5827}http://webfeeds.brookings.edu/~/101199864/0/brookingsrss/topics/europe~US-EU-and-Turkish-engagement-in-the-South-CaucasusU.S., EU, and Turkish engagement in the South Caucasus

Harsh geopolitical realities and historic legacies have pushed the South Caucasus states of Armenia, Azerbaijan, and Georgia back onto the foreign policy agendas of the United States, the European Union (EU), and Turkey, at a time when all three have pulled back from more activist roles in regional affairs. The South Caucasus states have now become, at best, second-tier issues for the West, but they remain closely connected to first-tier problems. To head off the prospect that festering crises in the Caucasus will lead to or feed into broader conflagrations, the United States, EU, and Turkey have to muster sufficient political will to re-engage to some degree in high-level regional diplomacy. In “Retracing the Caucasian Circle Considerations and Constraints for U.S., EU, and Turkish Engagement in the South Caucasus,” authors Fiona Hill, Kemal Kirişci, and Andrew Moffatt explore the rationale and assess the options for Western reengagement with Armenia, Azerbaijan, and Georgia given the current challenges and limitations on all sides. Based on a series of study trips to the South Caucasus and Turkey in 2014 and 2015, and numerous other interviews, the authors review some of the current factors that should be considered by Western policymakers and analysts.

Constraints and considerations for U.S., EU, and Turkish engagement in the South Caucasus:

• Divergent trends in the South Caucasus
• Russia’s influence in the South Caucasus
• Regional conflicts
• The United States’ diminishing role in the South Caucasus
• Failure to integrate the South Caucasus into the EU
• Foundering relations with Turkey
• Dashed expectations in the South Caucasus of Western engagement

Despite the challenges that have beset the West’s relations with the South Caucasus and the growing disillusionment in Armenia, Azerbaijan, and Georgia, giving up on engagement is not an option.

Policy options for the future:

• The United States, EU, and Turkey must work together, rather than separately
• “Under the radar” coordination on creative interim solutions and working with other mediators
• Focus on the development of “soft regionalism”
• Work with Georgia as the hub for furthering soft regionalism
• Devise adaptable policies as relations with Iran and China develop in the region

Harsh geopolitical realities and historic legacies have pushed the South Caucasus states of Armenia, Azerbaijan, and Georgia back onto the foreign policy agendas of the United States, the European Union (EU), and Turkey, at a time when all three have pulled back from more activist roles in regional affairs. The South Caucasus states have now become, at best, second-tier issues for the West, but they remain closely connected to first-tier problems. To head off the prospect that festering crises in the Caucasus will lead to or feed into broader conflagrations, the United States, EU, and Turkey have to muster sufficient political will to re-engage to some degree in high-level regional diplomacy. In “Retracing the Caucasian Circle Considerations and Constraints for U.S., EU, and Turkish Engagement in the South Caucasus,” authors Fiona Hill, Kemal Kirişci, and Andrew Moffatt explore the rationale and assess the options for Western reengagement with Armenia, Azerbaijan, and Georgia given the current challenges and limitations on all sides. Based on a series of study trips to the South Caucasus and Turkey in 2014 and 2015, and numerous other interviews, the authors review some of the current factors that should be considered by Western policymakers and analysts.

Constraints and considerations for U.S., EU, and Turkish engagement in the South Caucasus:

• Divergent trends in the South Caucasus
• Russia’s influence in the South Caucasus
• Regional conflicts
• The United States’ diminishing role in the South Caucasus
• Failure to integrate the South Caucasus into the EU
• Foundering relations with Turkey
• Dashed expectations in the South Caucasus of Western engagement

Despite the challenges that have beset the West’s relations with the South Caucasus and the growing disillusionment in Armenia, Azerbaijan, and Georgia, giving up on engagement is not an option.

Policy options for the future:

• The United States, EU, and Turkey must work together, rather than separately
• “Under the radar” coordination on creative interim solutions and working with other mediators
• Focus on the development of “soft regionalism”
• Work with Georgia as the hub for furthering soft regionalism
• Devise adaptable policies as relations with Iran and China develop in the region

Authors

]]>
http://www.brookings.edu/events/2015/07/15-engagement-south-caucasus?rssid=europe{252DD0CB-B114-439F-81AF-D4A9A2ACCCE7}http://webfeeds.brookings.edu/~/101120690/0/brookingsrss/topics/europe~Considerations-and-constraints-for-US-EU-and-Turkish-engagement-in-the-South-CaucasusConsiderations and constraints for U.S., EU, and Turkish engagement in the South Caucasus

Event Information

Harsh geopolitical realities and historic legacies have pushed the South Caucasus states of Armenia, Azerbaijan, and Georgia back onto the foreign policy agendas of the United States, the European Union (EU), and Turkey, at a time when all three have pulled back from more activist roles in regional affairs. Western disengagement has exacerbated some of the more negative regional trends by signaling disinterest and a lack of commitment toward resolving ongoing conflicts and challenges. These current dynamics create several policy challenges for the region and beyond, including whether the festering crises in the Caucasus will feed into broader conflagrations; whether the United States, EU, and Turkey re-evaluate their involvement in the region in light of Russia’s assertive new foreign policy; and whether given other priorities, can the West muster sufficient political will to re-engage, within limits, in high-level regional diplomacy?

On July 15, the Brookings Center on the United States and Europe (CUSE) hosted a panel to discuss a new report, Retracing the Caucasian Circle, co-authored by Fiona Hill, Kemal Kirişci, and Andrew Moffatt. In the paper, the authors provide an overview of the geopolitical and security issues facing Armenia, Azerbaijan, and Georgia and their consequences for relations with the West. The report advocates that in spite of major challenges these three actors should not give up on their engagement of the region and should adopt realistic approaches which can be sustained.

Following a presentation of the report by CUSE Director Fiona Hill, Deputy Assistant Secretary European and Eurasian Affairs Eric Rubin, retired Turkish Ambassador and President of Ankara Policy Center Ünal Çeviköz, and Klaus Botzet of the EU Delegation to the U.S. provided comments. Brookings TÜSİAD Senior Fellow Kemal Kirişci moderated the discussion.

The event is part of the TÜSİAD U.S.-Turkey Forum at Brookings, which hosts conferences, seminars, and workshops to consider topics of relevance to U.S.-Turkish and transatlantic relations.

Audio

Transcript

Event Materials

]]>
Wed, 15 Jul 2015 10:30:00 -0400http://7515766d70db9af98b83-7a8dffca7ab41e0acde077bdb93c9343.r43.cf1.rackcdn.com/20150715_CaucasusReport_Saul.mp3
Event Information
July 15, 2015
10:30 AM - 12:00 PM EDT
Saul/Zilkha Rooms
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036 Register for the Event
Harsh geopolitical realities and historic legacies have pushed the South Caucasus states of Armenia, Azerbaijan, and Georgia back onto the foreign policy agendas of the United States, the European Union (EU), and Turkey, at a time when all three have pulled back from more activist roles in regional affairs. Western disengagement has exacerbated some of the more negative regional trends by signaling disinterest and a lack of commitment toward resolving ongoing conflicts and challenges. These current dynamics create several policy challenges for the region and beyond, including whether the festering crises in the Caucasus will feed into broader conflagrations; whether the United States, EU, and Turkey re-evaluate their involvement in the region in light of Russia's assertive new foreign policy; and whether given other priorities, can the West muster sufficient political will to re-engage, within limits, in high-level regional diplomacy?
On July 15, the Brookings Center on the United States and Europe (CUSE) hosted a panel to discuss a new report, Retracing the Caucasian Circle, co-authored by Fiona Hill, Kemal Kirişci, and Andrew Moffatt. In the paper, the authors provide an overview of the geopolitical and security issues facing Armenia, Azerbaijan, and Georgia and their consequences for relations with the West. The report advocates that in spite of major challenges these three actors should not give up on their engagement of the region and should adopt realistic approaches which can be sustained.
Following a presentation of the report by CUSE Director Fiona Hill, Deputy Assistant Secretary European and Eurasian Affairs Eric Rubin, retired Turkish Ambassador and President of Ankara Policy Center Ünal Çeviköz, and Klaus Botzet of the EU Delegation to the U.S. provided comments. Brookings TÜSİAD Senior Fellow Kemal Kirişci moderated the discussion.
The event is part of the TÜSİAD U.S.-Turkey Forum at Brookings, which hosts conferences, seminars, and workshops to consider topics of relevance to U.S.-Turkish and transatlantic relations.
Event Information
July 15, 2015
10:30 AM - 12:00 PM EDT
Saul/Zilkha Rooms
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036 Register for the Event
Harsh geopolitical realities and historic legacies have pushed the ...

Event Information

Harsh geopolitical realities and historic legacies have pushed the South Caucasus states of Armenia, Azerbaijan, and Georgia back onto the foreign policy agendas of the United States, the European Union (EU), and Turkey, at a time when all three have pulled back from more activist roles in regional affairs. Western disengagement has exacerbated some of the more negative regional trends by signaling disinterest and a lack of commitment toward resolving ongoing conflicts and challenges. These current dynamics create several policy challenges for the region and beyond, including whether the festering crises in the Caucasus will feed into broader conflagrations; whether the United States, EU, and Turkey re-evaluate their involvement in the region in light of Russia’s assertive new foreign policy; and whether given other priorities, can the West muster sufficient political will to re-engage, within limits, in high-level regional diplomacy?

On July 15, the Brookings Center on the United States and Europe (CUSE) hosted a panel to discuss a new report, Retracing the Caucasian Circle, co-authored by Fiona Hill, Kemal Kirişci, and Andrew Moffatt. In the paper, the authors provide an overview of the geopolitical and security issues facing Armenia, Azerbaijan, and Georgia and their consequences for relations with the West. The report advocates that in spite of major challenges these three actors should not give up on their engagement of the region and should adopt realistic approaches which can be sustained.

Following a presentation of the report by CUSE Director Fiona Hill, Deputy Assistant Secretary European and Eurasian Affairs Eric Rubin, retired Turkish Ambassador and President of Ankara Policy Center Ünal Çeviköz, and Klaus Botzet of the EU Delegation to the U.S. provided comments. Brookings TÜSİAD Senior Fellow Kemal Kirişci moderated the discussion.

The event is part of the TÜSİAD U.S.-Turkey Forum at Brookings, which hosts conferences, seminars, and workshops to consider topics of relevance to U.S.-Turkish and transatlantic relations.

Audio

Transcript

Event Materials

]]>
http://www.brookings.edu/blogs/up-front/posts/2015/07/13-greece-europe-reach-deal-european-union-elliott?rssid=europe{C3EB6AB5-226E-48BC-81F0-BB146F77F582}http://webfeeds.brookings.edu/~/100789560/0/brookingsrss/topics/europe~Greece-and-Europe-reach-a-deal-after-allGreece and Europe reach a deal after all

Greece and its European creditors reached a tentative deal a few hours ago after a weekend of intense acrimony and tough negotiation. The three year deal for about 85 billion euros of new funding is good news for the rest of the world, assuming it holds, because it reduces the risk of European problems slowing the global economy.

Two substantial procedural risks remain, although a final deal is very likely. First, the Greek parliament has to pass, within a few days, austerity and structural reform measures that appear to be at least as tough as the ones that Prime Minister Tsipras campaigned to reject in the referendum a week earlier. This may create a crisis within his Syriza party, but he seems likely to retain his primacy within his own party and he certainly has enough votes from pro-euro opposition parties to reach a majority if he can manage to hold most of Syriza. He already got a very strong majority in parliament in a vote on Friday asking support for negotiating on the basis of his proposals, although admittedly he then had to make further concessions in Brussels. Second, the details of the new agreement will have to be negotiated between Greece and its creditors, and there could yet be a falling out that would leave the “deal” in tatters. This seems improbable, though, given the political capital all sides will have expended in getting to the provisional, high-level agreement.

How did Greece end up with a deal that appears on the surface to be worse than the prime minister and the Greek voters rejected so recently? There are four principal factors.

Getting a three-year deal for over 85 billion euros is substantially better than a short-term deal for around 15 billion euros. The concessions Tsipras made are only mildly tougher than what would have been required to gain a lot less money for a much shorter period. This is a real gain for Greece, although it is substantially mitigated by the conditionality that will be applied to accessing the funds, which will doubtless be doled out based on concrete steps taken by the Greeks. The value of gaining an immediate long-term agreement seems significant. It is impossible to know exactly what concessions would have been required with the two step procedure of reaching an interim funding deal followed by a longer-term accord, but the total requirements would almost certainly have been higher.

There are a few face-saving concessions for Greece. The Summit statement suggests that there may eventually be room for the maturity of some Greek debts to be lengthened and their interest rate chopped further. Negotiations on that could commence after the “first positive review” of the detailed program. Promising to consider and negotiate on this point is not a big concession, but it has symbolic weight. It is also the right thing to do. There is also the carrot of a potential 35 billion euro investment fund for Greek projects, spread over three to five years, although it seems likely that the great bulk of this would be funds that would be available anyway through various European Union programs.

European hardliners were reassured by weak market reactions to the referendum. Ironically, the Greek referendum weakened Tsipras’ hand by apparently showing that markets were not that concerned about the effects of Grexit on the rest of Europe and the world. From the time the referendum was unexpectedly called until Tsipras won it decisively, markets did move in response to the clearly higher risks of Grexit, but not very far, except in Greek markets. This weak response substantially cut the perceived probability of a short-term disaster for the rest of Europe if Greece did leave, making it easier for the hardliners to insist on tough conditions. As a result, Germany and a number of other nations hardened their stance and insisted on more actions by the Greek government in exchange for funding, rather than stepping back and reducing their demands as the Greeks doubtlessly had hoped.

Greeks were justifiably scared by the impact of the temporary bank closures. The sharp shock to the Greek economy -- and the everyday lives of Greek citizens -- from the bank closures and associated capital controls brought home the risks of any failure to reach a deal. When combined with the clear willingness of the more hardline European countries to accept Grexit if the alternative was a bad deal from their viewpoint, this changed the perceptions of many Greeks as to what the stakes were. Tsipras won the referendum by insisting that a “No” vote would give him more leverage to reach an improved deal while remaining within the Eurozone. Keeping the euro was very important to many of the voters who ended up supporting him in the referendum. However, a similar argument in favor of turning down a deal no longer applied, as the alternative had clearly become Grexit rather than an eventual better deal.

One final observation is that it is now quite evident that Greece’s audacious negotiating strategy failed to extract a better deal than a less confrontational approach would have. The newly installed government led by the Syriza party chose the path of brinksmanship over the last five months, presumably in the belief that the creditor governments in the rest of the Eurozone would sufficiently fear Grexit that they would ultimately make more concessions than a softer approach would have yielded. The government also chose to emphasize its radical Left credentials as the purportedly legitimate representatives of the people of Europe and gave strong support to parties with similar ideology, such as Podemos in Spain. Naturally, supporting the opponents of existing governments and implicitly questioning the legitimacy of most of them was never going to win friends among its negotiating partners. As I have written previously, the Greeks squandered a great deal of goodwill across Europe through their words and their negotiating tactics.

Syriza gambled and lost, causing the Greek economy to plunge back into recession as uncertainty and eventual capital controls strangled the economy. This would potentially be justified if a better ultimate deal resulted, but it is very hard to believe that the Greeks would have failed to do at least this well, with far less pain, if they had played nice instead. The only remaining argument in favor of their strategy is that it is possible that Tsipras had to be this confrontational in order to hold Syriza together while moving towards the concessions to Europe necessary for a deal. Again, it is hard to imagine that there was no better way, if only a toned down version of the tough approach to negotiations, but it is impossible to prove this.

In any event, there now appears to be a deal, which is definitely good news. Let us hope that it holds together through the remaining steps, leads to positive effects on the economy, and can be implemented over three years without any new and risky confrontations. None of these are certainties, but the alternative of Grexit would be so damaging that I, for one, will be celebrating the fact of a deal.

Authors

]]>
Mon, 13 Jul 2015 08:39:00 -0400Douglas J. Elliott
Greece and its European creditors reached a tentative deal a few hours ago after a weekend of intense acrimony and tough negotiation. The three year deal for about 85 billion euros of new funding is good news for the rest of the world, assuming it holds, because it reduces the risk of European problems slowing the global economy.
Two substantial procedural risks remain, although a final deal is very likely. First, the Greek parliament has to pass, within a few days, austerity and structural reform measures that appear to be at least as tough as the ones that Prime Minister Tsipras campaigned to reject in the referendum a week earlier. This may create a crisis within his Syriza party, but he seems likely to retain his primacy within his own party and he certainly has enough votes from pro-euro opposition parties to reach a majority if he can manage to hold most of Syriza. He already got a very strong majority in parliament in a vote on Friday asking support for negotiating on the basis of his proposals, although admittedly he then had to make further concessions in Brussels. Second, the details of the new agreement will have to be negotiated between Greece and its creditors, and there could yet be a falling out that would leave the “deal” in tatters. This seems improbable, though, given the political capital all sides will have expended in getting to the provisional, high-level agreement.
How did Greece end up with a deal that appears on the surface to be worse than the prime minister and the Greek voters rejected so recently? There are four principal factors.
Getting a three-year deal for over 85 billion euros is substantially better than a short-term deal for around 15 billion euros. The concessions Tsipras made are only mildly tougher than what would have been required to gain a lot less money for a much shorter period. This is a real gain for Greece, although it is substantially mitigated by the conditionality that will be applied to accessing the funds, which will doubtless be doled out based on concrete steps taken by the Greeks. The value of gaining an immediate long-term agreement seems significant. It is impossible to know exactly what concessions would have been required with the two step procedure of reaching an interim funding deal followed by a longer-term accord, but the total requirements would almost certainly have been higher.
There are a few face-saving concessions for Greece. The Summit statement suggests that there may eventually be room for the maturity of some Greek debts to be lengthened and their interest rate chopped further. Negotiations on that could commence after the “first positive review” of the detailed program. Promising to consider and negotiate on this point is not a big concession, but it has symbolic weight. It is also the right thing to do. There is also the carrot of a potential 35 billion euro investment fund for Greek projects, spread over three to five years, although it seems likely that the great bulk of this would be funds that would be available anyway through various European Union programs.
European hardliners were reassured by weak market reactions to the referendum. Ironically, the Greek referendum weakened Tsipras' hand by apparently showing that markets were not that concerned about the effects of Grexit on the rest of Europe and the world. From the time the referendum was unexpectedly called until Tsipras won it decisively, markets did move in response to the clearly higher risks of Grexit, but not very far, except in Greek markets. This weak response substantially cut the perceived probability of a short-term disaster for the rest of Europe if Greece did leave, making it easier for the hardliners to insist on tough conditions. As a result, Germany and a number of other nations hardened their stance and insisted on more actions by the Greek government in exchange for funding, rather than stepping back and reducing their demands as the ...
Greece and its European creditors reached a tentative deal a few hours ago after a weekend of intense acrimony and tough negotiation. The three year deal for about 85 billion euros of new funding is good news for the rest of the world, assuming ...

Greece and its European creditors reached a tentative deal a few hours ago after a weekend of intense acrimony and tough negotiation. The three year deal for about 85 billion euros of new funding is good news for the rest of the world, assuming it holds, because it reduces the risk of European problems slowing the global economy.

Two substantial procedural risks remain, although a final deal is very likely. First, the Greek parliament has to pass, within a few days, austerity and structural reform measures that appear to be at least as tough as the ones that Prime Minister Tsipras campaigned to reject in the referendum a week earlier. This may create a crisis within his Syriza party, but he seems likely to retain his primacy within his own party and he certainly has enough votes from pro-euro opposition parties to reach a majority if he can manage to hold most of Syriza. He already got a very strong majority in parliament in a vote on Friday asking support for negotiating on the basis of his proposals, although admittedly he then had to make further concessions in Brussels. Second, the details of the new agreement will have to be negotiated between Greece and its creditors, and there could yet be a falling out that would leave the “deal” in tatters. This seems improbable, though, given the political capital all sides will have expended in getting to the provisional, high-level agreement.

How did Greece end up with a deal that appears on the surface to be worse than the prime minister and the Greek voters rejected so recently? There are four principal factors.

Getting a three-year deal for over 85 billion euros is substantially better than a short-term deal for around 15 billion euros. The concessions Tsipras made are only mildly tougher than what would have been required to gain a lot less money for a much shorter period. This is a real gain for Greece, although it is substantially mitigated by the conditionality that will be applied to accessing the funds, which will doubtless be doled out based on concrete steps taken by the Greeks. The value of gaining an immediate long-term agreement seems significant. It is impossible to know exactly what concessions would have been required with the two step procedure of reaching an interim funding deal followed by a longer-term accord, but the total requirements would almost certainly have been higher.

There are a few face-saving concessions for Greece. The Summit statement suggests that there may eventually be room for the maturity of some Greek debts to be lengthened and their interest rate chopped further. Negotiations on that could commence after the “first positive review” of the detailed program. Promising to consider and negotiate on this point is not a big concession, but it has symbolic weight. It is also the right thing to do. There is also the carrot of a potential 35 billion euro investment fund for Greek projects, spread over three to five years, although it seems likely that the great bulk of this would be funds that would be available anyway through various European Union programs.

European hardliners were reassured by weak market reactions to the referendum. Ironically, the Greek referendum weakened Tsipras’ hand by apparently showing that markets were not that concerned about the effects of Grexit on the rest of Europe and the world. From the time the referendum was unexpectedly called until Tsipras won it decisively, markets did move in response to the clearly higher risks of Grexit, but not very far, except in Greek markets. This weak response substantially cut the perceived probability of a short-term disaster for the rest of Europe if Greece did leave, making it easier for the hardliners to insist on tough conditions. As a result, Germany and a number of other nations hardened their stance and insisted on more actions by the Greek government in exchange for funding, rather than stepping back and reducing their demands as the Greeks doubtlessly had hoped.

Greeks were justifiably scared by the impact of the temporary bank closures. The sharp shock to the Greek economy -- and the everyday lives of Greek citizens -- from the bank closures and associated capital controls brought home the risks of any failure to reach a deal. When combined with the clear willingness of the more hardline European countries to accept Grexit if the alternative was a bad deal from their viewpoint, this changed the perceptions of many Greeks as to what the stakes were. Tsipras won the referendum by insisting that a “No” vote would give him more leverage to reach an improved deal while remaining within the Eurozone. Keeping the euro was very important to many of the voters who ended up supporting him in the referendum. However, a similar argument in favor of turning down a deal no longer applied, as the alternative had clearly become Grexit rather than an eventual better deal.

One final observation is that it is now quite evident that Greece’s audacious negotiating strategy failed to extract a better deal than a less confrontational approach would have. The newly installed government led by the Syriza party chose the path of brinksmanship over the last five months, presumably in the belief that the creditor governments in the rest of the Eurozone would sufficiently fear Grexit that they would ultimately make more concessions than a softer approach would have yielded. The government also chose to emphasize its radical Left credentials as the purportedly legitimate representatives of the people of Europe and gave strong support to parties with similar ideology, such as Podemos in Spain. Naturally, supporting the opponents of existing governments and implicitly questioning the legitimacy of most of them was never going to win friends among its negotiating partners. As I have written previously, the Greeks squandered a great deal of goodwill across Europe through their words and their negotiating tactics.

Syriza gambled and lost, causing the Greek economy to plunge back into recession as uncertainty and eventual capital controls strangled the economy. This would potentially be justified if a better ultimate deal resulted, but it is very hard to believe that the Greeks would have failed to do at least this well, with far less pain, if they had played nice instead. The only remaining argument in favor of their strategy is that it is possible that Tsipras had to be this confrontational in order to hold Syriza together while moving towards the concessions to Europe necessary for a deal. Again, it is hard to imagine that there was no better way, if only a toned down version of the tough approach to negotiations, but it is impossible to prove this.

In any event, there now appears to be a deal, which is definitely good news. Let us hope that it holds together through the remaining steps, leads to positive effects on the economy, and can be implemented over three years without any new and risky confrontations. None of these are certainties, but the alternative of Grexit would be so damaging that I, for one, will be celebrating the fact of a deal.